OF  THE 
U  NIVERS  ITY 
Of  ILLI  NOIS 

Dye> 


The  Development  of  Banking 
'in  Illinois,  1817-1863 


BY 


GEORGE  WILLIAM  DOWRIE 

A.  B.  Lake  Forest  College,  1901 
A.  M.  The  University  of  Chicago,  1907 


Thesis  Submitted  in  partial  fulfilment  of  the  requirements 
for  the  degree  of  Doctor  of  Philosophy  in  Economics 
in  the  Graduate  School  of  the  University 
of  Illinois,  1913 


Copyright,  191 3 
By  the  University  of  Illinois 


1, 


CONTENTS 

CHAPTER  I 

PAGE 

The  Monetary  Situation  in  Illinois  Previous  to  the  Establish- 
ment of  Banks   6 

Few  white  settlers  in  Illinois  before  1817 — Scarcity  of  money — 
Animal  skins  formed  principal  medium  of  exchange. 

CHAPTER  II 

The  Territorial  Banks   '.   9 

Four  banks  chartered — Provisions  of  the  charter  of  the  Bank 
of  Illinois — History  of  its  operations — Provisions  of  the  charter 
of  the  Bank  of  Edwardsville — Its  history — The  Edwards-Crawford 
controversy — Provisions  peculiar  to  the  charters  of  the  Banks  of 
Cairo  and  Kaskaskia — Their  failure  to  operate — Review  of  con- 
ditions during  the  period — Analysis  of  the  banks'  statements. 

CHAPTER  III 

Banking  a  State  Monopoly   22 

Provisions  of  the  Constitution  of  1818  concerning  banks — 
First  state  bank  chartered — Failure  to  operate — Second  state  bank 
chartered — Opposition  to  the  project — Provisions  of  the  charter — 
State  bank  notes  issued  to  needy  inhabitants  of  the  state — Rapid 
depreciation  of  the  notes — -The  Coles  investigation — Remedial  and 
relief  legislation — The  Edwards  investigation — Further  remedial 
and  relief  laws  adopted — Measures  for  the  final  settlement  of  the 
bank's  affairs — The  Wiggins  loan — The  Duncan  affair — Further 
relief  legislation — Analysis  of  the  bank's  statements — Extent  of 
the  state's  loss. 

CHAPTER  IV 

Banking  and  Internal  Improvements    59 

No  local  banks  of  issue  from  1831-35 — Demand  for  new  state 
bank — New  state  bank  chartered — Provisions  of  the  charter — Old 
Bank  of  Illinois  revived — Bank  of  Cairo  opened — Contest  for 

control  of  state  bank  Early  operations  of  the  bank — Effort  to 

obtain  government  deposits — Internal  Improvement  mania  seizes 
Illinois — State  becomes  majority  stockholder  in  state  bank  and  in 
Bank  of  Illinois — Legislative  investigation — Panic  of  1837 — Banks 
suspend — Suspension  legalized—Crisis  of  1839 — Banks  again  sus- 


pend — Investigation  of  state  bank  reveals  excessive  loans  to 
speculators — Banks  and  state  in  desperate  situation — State  bank 
forced  to  resume — Suspension  again  authorized — Bank  manage- 
ment becomes  reckless — Banks  close  their  doors — Analysis  of  their 
balance  sheets — State  bank  placed  in  liquidation — Progress  of  the 
settlement — Terms  of  the  Bank  of  Illinois  liquidation  bill — Pro- 
gress of  the  settlement  of  its  affairs — History  of  the  Bank  of 
Cairo — Illegal  banking  in  Chicago. 


he  Free  Bank  System  of  Illinois   

No  banks  of  issue  from  1843-51 — New  constitution  provides 
for  general  banking  law — Free  bank  system  adopted — Provisions — 
Few  banks  established  at  first — Amendments  of  1853  put  an  end 
to  illegal  issues — Bank  commissioners'  recommendations — Panic 
of  1854 — Auditor's  report  and  recommendations,  1855 — Large 
amount  of  foreign  paper  in  Illinois — Amendments  of  1857 — Panic 
of  1857 — Rapid  increase  in  number  of  banks — Secession  of  South 
causes  collapse  of  the  Illinois  banking  system — Comparative  study 
of  different  types  of  Illinois  banks — Legislature  reconstructs  bank- 
ing system — Constitution  of  1862  providing  for  abolition  of  incor- 
porated banks,  rejected — Effect  of  national  banking  act  and  ten  per 
cent  tax  law — Legislature  abolishes  banks  of  issue. 


CHAPTER  V 


UNJC 


PREFACE 


Early  Illinois  banking  passed  through  four  distinct 
cycles.  The  first  originated  and  reached  its  climax  be- 
tween the  years  1814  and  1819.  The  second  began  in  1821 
and  reached  a  culmination  in  1824-25.  The  mania  for 
internal  improvements  in  the  thirties  caused  the  develop- 
ment of  a  third  movement  which  came  to  a  climax  in  1837. 
The  adoption  of  the  stock  bank  system  in  1851  began  the 
fourth  cycle  which  attained  its  highest  point  in  1860. 

The  results  of  this  study  show  that  in  each  of  these 
movements  events  follow  a  regular  sequence:  (1)  An 
urgent  demand  on  the  part  of  a  needy  community  for  a 
plentiful  medium  of  exchange;  (2)  The  passage  of  a  law 
providing  for  a  generous  issue  of  poorly  safeguarded 
paper;  (3)  A  brief  period  of  fictitious  prosperity  largely 
due  to  speculation;  (4)  A  crisis  which  at  first  results  in 
the  suspension  of  redemption  and  later  in  the  collapse 
of  the  bank  of  issue;  (5)  Hard  times;  (6)  The  develop- 
ment of  a  strong  anti-bank  sentiment ;  ( 7 )  The  beginning 
of  the  next  cycle  after  a  surprisingly  brief  interval. 

The  method  of  treatment  followed  has  been  to  outline 
the  laws  passed  by  the  legislature  and  to  show  two  things : 
( 1 )  The  causes  which  led  to  the  enactment  of  the  measures ; 
and  (2)  The  effect  which  the  legislation  produced  upon  the 
community. 

The  material  has  been  gathered  from  legislative 
records,  newspapers,  banking  journals,  county  and  state 
histories,  and  the  letters  and  biographies  of  prominent 
men.  Special  mention  is  due  the  invaluable  treatise  of 
Governor  Thomas  Ford  Avho  was  present  at  practically 
every  session  of  the  legislature  before  1846.  The  general 
works  of  Knox  and  Sumner  and  the  monograph  on  "State 
Banks  of  Issue  in  Illinois"  by  Garnett  have  proved  useful 
in  checking  up  conclusions  drawn  from  common  sources. 

The  thanks  of  the  writer  are  especially  due  to 
Professor  E.  L.  Bogart  and  Doctor  C.  M.  Thompson  who 
have  read  the  manuscript  of  this  study  and  made  many 
valuable  suggestions.  He  is  also  indebted  to  the  other 
members  of  the  department  of  economics  at  the  University 
of  Illinois  for  numerous  helpful  suggestions. 

5 


CHAPTEIi  I 


The  Monetary  Situation  in  Illinois  Previous  to  the 
Establishment  of  Banks. 

The  first  white  settlements  in  Illinois  were  colonies 
founded  by  French  traders  and  missionary  priests  along 
the  Mississippi  Kiver.  For  local  purposes  these  colonies 
made  use  of  Indian  currency  and  pelts  of  wild  animals 
or  of  the  certificates  of  deposit  issued  by  the  royal  ware- 
houses in  payment  for  furs.1  The  few  commodities  received 
from  the  outside  world  were  paid  for  by  shipments  of  corn, 
pork  and  skins  "down  the  river".  Little  had  been  done 
toward  developing  the  resources  of  the  territory  when 
France  gave  way  to  England  in  1763. 2 

The  coming  of  the  English  soldiers  in  1765  caused 
some  of  the  two  thousand  French  settlers  to  cross  over 
to  the  western  bank  of  the  Mississippi,  but  on  the  whole 
conditions  remained  unchanged  during  the  brief  period  of 
British  rule.3 

After  1778  when  George  Kogers  Clark  took  possession 
of  Illinois,  the  best  element  of  the  French  population 
migrated  across  the  river  and  French  influence  upon  Illi- 
nois history  was  soon  effaced.  Moreover,  American  set- 
tlers for  a  time  came  very  slowly  and  it  was  not  until 
1800  that  the  population  of  Illinois  again  approximated 
2500,  the  point  it  had  reached  fifty  years  before  under  the 
French.  During  the  next  decade  a  somewhat  larger  tide 
of  immigration  set  in  but  it  was  not  until  the  close  of  the 
war  of  1812  that  there  was  a  serious  demand  for  banks.4 
The  people  with  the  exception  of  a  few  small  merchants 

1Thompson,  The  Monetary  Situation  in  Nouvclle  France,  Journal  of 
the  Illinois  State  Historical  Society,  iv,  146. 
-Thwaites,  Jesuit  Relations,  lxix,  143  ff. 
3Alvord,  Illinois:  The  Origins,  9  ff. 
Hbid. 

6 


365]  SITUATION  PRIOR  TO  BANKS  7 

were  engaged  in  agriculture  and  the  few  needs  of  the 
family  were  supplied  at  home.  The  flax  field  and  the 
flock  of  sheep  provided  the  raw  material  for  the  house- 
wife's spinning  wheel  and  loom,  while  the  house  and  its 
furniture  were  constructed  of  the  crude  materials  at 
hand.5  In  1802  it  was  estimated  that  not  one  pioneer  in 
ten  possessed  a  single  dollar  in  specie.0  In  fact,  long  after 
the  state  was  admitted  to  the  Union,  the  receipt  of  a  letter 
involved  a  considerable  search  on  the  part  of  the  recipient 
for  the  twenty-five  cents  in  specie  which  was  the  usual 
postage  on  letters  from  the  East.7  As  far  as  the  few  local 
transactions  were  concerned,  the  pelts  of  the  heaver,  the 
raccoon,  the  wolf,  and  the  deer  were  universally  acceptable 
and  for  a  long  time  continued  to  serve  as  money  in  the 
more  backward  portions  of  the  state.8  "Wolf  scalps  were 
as  good  as  county  orders  and  with  bear,  deer  and  'coon 
skins  were  exchangeable  for  tax  receipts."9  When  the 
publisher  of  one  of  the  early  Illinois  newspapers  found  it 
impossible  to  meet  his  bill  for  paper  in  any  other  way,  he 
shipped  to  his  eastern  creditor  nine  and  a  half  dozen  deer 
skins  valued  at  six  dollars  apiece.10  The  occasional  pieces 
of  money  which  found  their  way  into  the  West  were  eagerly 
seized  upon  by  the  merchants  and  used  in  making  remit- 
tances to  the  East.  In  like  manner  the  few  notes  of  the 
United  States  Bank  which  reached  the  West  were  even 
more  eagerly  sought  after  on  account  of  the  smaller  risk 
attached  to  sending  them.11  In  1810,  according  to  the 
census  of  that  year,  there  were  only  12,284  persons  in 
Illinois,  and  what  little  immigration  there  was  was  checked 

0  Perkins  and  Peck,  Annals  of  the  West,  714;  Ford,  History  of  Illinois, 
41 ;  Smith,  St.  Clair  Papers,  ii,  438,  439.  Boggess,  The  Settlement  of 
Illinois,  1778- 1830,  21-2 

6Michaux,  Travels,  226. 

7Heylin,  History  of  Fulton  County,  702. 

8Ford,  History  of  Illinois,  43;  Clarke,  pub.,  History  of  Pike  County, 
104;  Goodspeed,  pub.,  History  of  Gallatin,  Saline,  Hamilton,  Franklin  and 
Williamson  Counties,  113. 

9Goodspeed,  pub.,  History  of  Gallatin,  etc.,  Counties,  236. 

10Ibid.,  113. 

11Michaux,  Travels,  127. 


8  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [366 


by  the  outrages  of  the  Indians  before  and  during  the 
War  of  1812.12 

The  close  of  the  war  marks  a  distinct  transition  in 
the  economic  life  of  the  people  of  Illinois.  In  the  first 
place  there  was  a  large  influx  of  settlers  who  brought  some 
money  with  them  and  thus  created  a  demand  for  a  better 
medium  of  exchange  than  animal  pelts.  Secondly,  better 
agricultural  methods  were  introduced.  The  new  settlers 
instead  of  spending  a  large  part  of  their  time  in  hunting 
and  fishing,  improved  their  land  and  built  substantial 
buildings  upon  it.13'  Steamboats  now  plied  between  St. 
Louis  and  the  ports  on  the  Ohio  and  Mississippi  with  the 
result  that  Illinois  produce  could  be  marketed  at  a  profit 
and  pieces  of  money  became  less  of  a  curiosity  to  the 
Illinois  farmer. 

Lastly,  the  passage  of  a  liberal  land  law  had  stimulated 
the  purchase  of  Illinois  farms  to  such  an  extent  that 
two  land  offices  were  established  in  the  territory  and  by 
1816  over  half  a  million  acres  were  sold.14  The  whole 
period  from  1814  to  1819,  in  fact,  is  characterized  by  the 
rage  for  speculating  in  farms  and  town  lots,  accompanied 
by  a  persistent  clamor  for  a  plentiful  supply  of  currency. 
For  this  reason,  the  chief  function  of  a  western  bank 
seems  to  have  been  to  manufacture  paper  money  and  issue 
it  on  easy  terms  to  the  ambitious  but  impecunious  in- 
habitants. 

12Greene,  Government  of  Illinois,  119. 

13Reynolds,  My  Own  Times,  176;  Boggess,  The  Settlement  of  Illi- 
nois, 1778- 1830,  118  ff. 

14Ford,  History  of  Illinois,  43. 


CHAPTER  II 


The  Territorial  Banks. 

The  members  of  the  territorial  legislature  were  sub- 
jected to  constant  pressure  by  their  constituents  to  follow 
the  example  of  Ohio  and  Kentucky  in  each  of  which  states 
there  had  been  established  a  number  of  private  banks.1 
They  at  length  yielded  to  this  demand  and  at  their  ses- 
sions of  1816-17  and  1817-18  granted  charters  to  the  fol- 
lowing institutions:  the  Bank  of  Illinois,  the  Bank  of 
Edwardsville,  the  Bank  of  Kaskaskia  and  the  City  and 
Bank  of  Cairo. 

The  Bank  of  Illinois  was  located  at  Shawneetown, 
a  thriving  settlement  on  the  Ohio  River  just  below  the 
mouth  of  the  Wabash.  The  United  States  saline  works 
which  produced  about  three  hundred  thousand  bushels  of 
salt  a  year  were  only  a  few  miles  away,  while  a  large 
part  of  the  tide  of  immigration  made  this  point  its  first 
stopping  place  in  Illinois.  At  the  time  the  bank  opened 
there  were  five  hundred  inhabitants,  a  number  of  stores  and 
taverns,  a  newspaper  office,  a  United  States  land  office 
and  a  private  bank,  established  in  1813. 2  The  business 
of  the  last  named  enterprise,  however,  passed  into  the 
control  of  the  Bank  of  Illinois.3 

The  charter  granted  to  "the  President  and  Directors 
of  the  Bank  of  Illinois"  contained  the  following  provisions : 
The  capital  stock  of  three  hundred  thousand  dollars  was 
divided  into  shares  of  one  hundred  dollars  each;  one 
third  of  them  to  be  reserved  for  the  territory  or  the  pros- 
pective state  of  Illinois,  if  the  legislature  cared  to  purchase 
them.  Business  was  to  begin  when  fifty  thousand  dollars 
had  been  subscribed  and  ten  thousand  paid  in.4   No  limit 

1Ford,  History  of  Illinois,  43. 

2Woods,  English  Prairie,  129,  130;  Report  of  the  Comptroller  of 
Currency,  1876,  p.  29;  Moses,  Illinois  Historical  and  Statistical,  i,  263. 
3Knox,  History  of  Banking  in  the  United  States,  712. 
4Laws  of  Illinois,  1816-17,  p.  11  ff.,  Section  1. 

9 


10  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [368 

was  placed  upon  the  shares  one  person  could  own,  but 
during  the  first  ten  days  of  subscription  no  one  could 
subscribe  for  more  than  ten  shares  per  day.  Owing  to 
the  scarcity  of  specie  the  payment  of  only  ten  dollars 
down  in  gold  or  silver  was  required,  the  rest  to  be  paid 
in  notes  of  other  banks  at  the  discretion  of  the  directors 
so  long  as  not  more  than  twenty-five  per  cent  of  the  whole 
was  asked  for  at  any  time  and  that  after  sixty  days' 
notice.5 

The  corporation  was  to  continue  for  twenty  years, 
and  during  its  life  could  acquire  property  to  the  extent 
of  five  hundred  thousand  dollars.6  Its  twelve  directors 
must  be  resident  citizens  of  Illinois  chosen  by  a  plurality 
vote  of  the  stockholders.  Holders  of  one  to  two  shares 
had  one  vote;  two  to  ten  shares,  one  vote  for  every  two 
shares;  ten  to  thirty  shares,  one  vote  every  four  shares; 
and  so  on,  the  proportionate  influence  of  the  larger  stock- 
holders lessening  as  the  size  of  their  holdings  increased.7 
Fifteen  or  more  shareholders  owning  not  less  than  fifty 
shares  could  hold  a  meeting  and  appoint  three  of  their 
number  to  examine  the  books  and  papers  of  the  bank.8 

The  corporation  could  hold  no  lands  except  such  as 
were  necessary  for  the  accommodation  of  its  business  and 
those  mortgaged  as  security  for  loans  or  bought  at  judg- 
ment executions  in  the  bank's  favor.  Its  debts  were  not 
to  exceed  twice  the  capital  actually  paid  in,  money  on 
deposit  not  being  taken  into  consideration.  If  the  directors 
violated  this  provision  they  were  personally  liable  for 
the  excess ;  but  if  a  director  could  prove  that  he  was  not 
present  or  that  he  voted  against  the  violation  of  the  charter 
he  was  exonerated.9 

In  its  dealings  the  corporation  was  limited  to  bills 
of  exchange,  gold  and  silver,  goods  pledged  and  not  re- 
deemed and  goods  produced  on  the  bank's  lands.  The 

5 Laws  of  Illinois,  1816-17,  p.  11  ff.,  Section  2. 

®Ibid.,  Section  3. 

^Ibid.,  Section  7. 

sIbid.,  Section  7,  Clause  1. 

*Ibid.,  Clause  7. 


369] 


THE  TERRITORIAL  BANKS 


11 


rate  of  discount  was  never  to  exceed  six  per  cent.  If  at 
any  time  the  bank  suspended  specie  payment  the  holder 
of  the  obligation  upon  which  the  payment  in  specie  was 
refused  could  collect  twelve  per  cent  interest  until  he  re- 
ceived his  money.10 

The  committee  appointed  to  receive  subscriptions  hav- 
ing secured  the  necessary  ten  thousand  dollars  in  specie, 
the  bank  opened  for  business  January  1,  1817.  Shortly 
afterwards,  Secretary  Crawford  of  the  United  States 
treasury  asked  the  United  States  Bank  to  designate  certain 
banks  as  additional  depositaries  of  government  funds,  but 
the  arrangement  was  so  unsatisfactory  that  it  was  termi- 
nated the  next  year.  Mr.  Crawford  himself  thereupon 
designated  certain  banks  as  "agents  of  the  treasury", 
among  them  the  Bank  of  Illinois.11  Under  the  agreement 
which  went  into  effect  February  1,  1819,  the  bank  received 
and  deposited  to  the  credit  of  the  treasury  all  current  notes 
of  such  banks  as  maintained  cash  payments,  but  it  had 
the  power  to  refuse  to  receive  the  notes  of  any  bank  upon 
giving  the  receiver  reasonable  notice.  All  drafts  upon  it 
by  the  United  States  treasurer  were  to  be  paid  at  sight 
and  all  amounts  above  the  fixed  sum  of  fifty  thousand 
dollars  allotted  to  the  bank  as  a  permanent  deposit  must 
be  sent  to  a  branch  of  the  United  States  Bank.12  If  the 
treasurer  desired  to  pay  a  sum  of  money  in  the  neighbor- 
hood of  Shawneetown  he  could  do  so  even  if  the  bank 
were  left  with  less  than  fifty  thousand  dollars.  The  Bank 
of  Illinois  was  required  to  make  monthly  reports  of  its 
own  condition  and  of  its  account  with  the  federal  govern- 
ment. Every  quarter  it  was  required  to  add  to  the  regular 
monthly  report  a  list  of  its  debtors  and  the  amount  of 
their  obligations.  The  privilege  of  retaining  within  the 
community  a  large  share  of  the  money  collected  by  the 

10 Laws  of  Illinois,  1816-17,  p.  11,  Section  7,  Clause  9. 

^Niles'  National  Register,  xxvi,  290;  U.  S.,  H.  of  R.,  18  Cong.,  1 
Sess.,  Doc.  no.  128,  p.  4. 

12A  messenger  from  the  bank  carried  the  money  in  person  to  New 
Orleans  or  Louisville,  often  undergoing  great  danger  and  hardships. 
U.  S.,  18  Cong.,  1  Sess.,  Report  of  the  Secy,  of  Treas.,  444,  525,  545, 
55i,  565. 


12  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [370 

local  land  office  meant  much  to  the  people  of  Shawneetown 
as  well  as  to  the  bank,  for  the  strict  supervision  by  the 
federal  government  prevented  any  serious  deviation  from 
the  course  of  legitimate  banking. 

Although  the  bank  was  required  to  meet  its  obligations 
in  specie,  the  legislature  during  the  same  session  at  which 
the  charter  was  granted,  passed  a  law  providing  that  all 
executions  should  be  subject  to  a  stay  of  one  year  unless 
the  party  bringing  judgment  should  agree  in  writing  to 
accept  in  payment  of  the  execution  the  notes  of  the  Bank 
of  Illinois  and  several  other  western  banks.13  Since  the 
legislature  was  not  permitted  under  the  federal  constitu- 
tion to  make  the  notes  legal  tender14  recourse  to  such 
devices  as  the  above  was  necessary  in  order  to  protect 
the  debtor  class  which  formed  a  large  part  of  the  popula- 
tion of  the  territory.  The  members  of  the  legislature 
justified  the  act  by  the  assertion  that  it  would  have  been 
utterly  impossible  for  payment  to  be  made  in  specie  with- 
out great  sacrifice  of  property.15  This  act,  while  it  worked 
injury  to  the  bank  as  a  creditor,  was  beneficial  in  so  far 
as  it  stimulated  the  circulation  of  its  notes. 

In  spite  of  the  fact  that  the  Bank  of  Illinois  enjoyed 
an  unusually  good  reputation  for  conservative  manage- 
ment,16 its  progress  was  impeded  by  the  attacks  of  its 
enemies.  A  feeling  of  jealousy  existed  between  the  towns 
of  Kaskaskia  and  Shawneetown  and  between  the  Bank 
of  Missouri  at  St.  Louis  and  the  Bank  of  Illinois.  Accord- 
ing to  President  Marshall  of  the  latter  bank,  the  receiver 
of  public  moneys  at  Kaskaskia  pursued  the  policy  of 
shaking  the  public  confidence  in  the  Shawneetown  bank 
by  one  day  accepting  its  bills  in  payment  of  dues  to  the 

13The  list  included  the  banks  of  Cincinnati  and  Chillicothe  in  Ohio, 
any  bank  in  Tennessee  or  Kentucky  and  the  banks  of  Vincennes  and 
Missouri.    Laws  of  Illinois,  1816-17,  p.  20,  Section  1. 

14Article  1,  Section  10. 

15Laws  of  Illinois,  181 6- 17,  p.  20. 

16The  Edwardsville  Spectator,  August  28,  1821 ;  Gouge,  The  Curse 
of  Paper  Money  and  Banking,  91,  n. ;  Niles  Register,  xviii,  78;  Moses, 
Illinois  Historical  and  Statistical,  i,  263;  Andreas,  History  of  Chicago, 
i,  526. 


371] 


THE  TERRITORIAL  BANKS 


13 


government  and  the  next  day  refusing  them.17  The  Bank 
of  Missouri  went  a  step  farther  in  its  hostility  toward  its 
weaker  rivals.  It  would  refuse  to  accept  their  notes  for 
a  time  and  then,  in  order  to  present  a  large  amount  for 
redemption,  would  accept  them  freely.  On  one  occasion 
a  representative  of  the  Missouri  bank  appeared  at  the 
counter  of  the  Bank  of  Illinois  and  obtained  twelve  thous- 
and dollars  of  its  small  supply  of  specie  in  exchange  for 
Bank  of  Illinois  notes.18  The  Bank  of  Missouri  seems  to 
have  been  an  especial  favorite  at  Washington  for  it  re- 
ceived an  unusual  share  of  the  government  deposits.  It 
was  thus  able  to  exercise  a  poAverful  control  over  its  weaker 
competitors.  "Between  powerful  neighbors  and  domestic 
enemies/'19  the  organization  and  successful  conduct  of  a 
pioneer  bank  must  have  required  a  considerable  degree 
of  ability  and  courage. 

In  spite  of  a  severe  financial  stringency  extending 
over  two  years,  the  Bank  of  Illinois  continued  to  carry 
on  its  business  and  succeeded  in  maintaining  specie  pay- 
ment until  long  after  the  banks  of  older  states  had  sus- 
pended.20 A  few  days  before  suspension  was  voted,  the 
directors  had  declared  a  dividend  of  eight  per  cent.  The 
editor  of  the  Edwardsville  Spectator  attributed  this  to 
the  government  funds  on  deposit,  but  the  Shawneetown 
Gazette  replied  that  the  bank  enjoyed  a  good  healthy  busi- 
ness irrespective  of  federal  deposits  and  had  never  refused 
to  redeem  a  note  on  demand.21 

The  continued  struggle  in  the  face  of  conditions  which 
seemed  to  have  no  prospect  of  improvement  at  last  ( 1823 ) 
forced  the  bank  to  suspend  operations.  By  a  succession 
of  compromises  with  its  debtors  and  creditors  it  managed 
to  redeem  all  of  its  outstanding  notes  so  far  as  they  were 

17Letter  of  Marshall  to  Edwards,  in  Edwards*  Papers.  155. 

18Ibid. 

™Ibid. 

20Gouge,  The  Curse  of  Paper  Money  and  Banking,  91,  n. ;  Bankers' 
Magazine,  ix,  u;  U.  S.,  18  Cong.,  i  Sess.,  Report  of  Secy,  of  Treas., 
426,  570. 

21Shawneetown  Gazette,  quoted  in  Edwardsville  Spectator,  August 
28,  1821. 


14  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [372 


presented;  but  other  liabilities,  among  them  a  balance  of 
|28,367.85  belonging  to  the  federal  government,  could  not 
be  met.22  When,  however,  after  a  lapse  of  fourteen  years 
the  bank  was  reopened  under  circumstances  which  will 
be  discussed  later,  a  settlement  was  made  with  the  United 
States,  and  several  hundred  dollars  worth  of  the  original 
note  issue  was  redeemed.23 

The  next  bank  to  be  established  in  Illinois  was  the 
Bank  of  Edwardsville,  which  received  its  charter  in  1818. 
Edwardsville,  though  but  a  few  miles  from  St.  Louis,  was 
a  town  of  considerable  importance  and  a  rival  of  Kaskaskia 
and  Shawneetown  for  the  honor  of  being  the  leading  com- 
mercial center  of  the  territory.  The  provisions  of  the 
charter  of  the  Bank  of  Edwardsville  differed  from  those 
of  the  Bank  of  Illinois  in  the  following  minor  details: 
(1)  The  bank  could  begin  business  when  five  dollars  in 
specie  or  bills  of  specie  paying  banks  had  been  paid  down 
on  each  share;24  (2)  There  was  no  restriction  as  to  the 
number  of  shares  to  be  subscribed  for  by  one  person;25 
(3)  The  bank  was  not  confined  to  a  six  per  cent  discount 
as  the  Bank  of  Illinois  had  been,  but  could  charge  the 
"legal  rate;"26  (4)  Instead  of  the  cumulative  plan  of  vot- 
ing, the  "one  share  one  vote"  plan  was  provided.27 

The  stock  was  placed  on  sale  by  a  committee  of  promi- 
•  nent  business  men  of  Edwardsville  and  when,  late  in  the 
year  1818,  the  requisite  ten  thousand  dollars  in  specie, 
or  its  equivalent,  had  been  received  the  bank  began  busi- 
ness.28   In  the  year  or  more  that  had  elapsed  since  the 

22U.  S.,  H.  of  R.,  Letter  of  Secy,  of  Treas.,  1838,  Doc.  no.  79,  780; 
Andreas,  History  of  Chicago,  i,  526;  Knox,  History  of  Banking  in  the 
United  States,  714. 

23U.  S.,  H.  of  R.,  Letter  of  Secy,  of  Treas.,  1838,  Doc.  no.  79,  780; 
U.  S.  Reports  on  the  Finances,  1829-36,  p.  605. 

24Laws  of  Illinois,  1817-18,  p.  65,  Section  2.  The  charter  of  the  Bank 
of  Illinois  required  the  payment  of  ten  dollars  in  specie. 

25Ibid.  Under  the  Bank  of  Illinois  charter  no  one  person  could 
subscribe  for  more  than  ten  shares  per  day  during  the  first  ten  days. 

26Ibid.,  69,  Section  7,  Clause  7. 

27Ibid.,  68,  Section  7,  Clause  1. 

28Knox,  History  of  Banking  in  United  States,  713;  U.  S.,  H.  of  R., 
18  Cong.,  1  Sess.,  Doc.  no.  133. 


373] 


THE  TERRITORIAL  BANKS 


15 


organization  of  the  Bank  of  Illinois,  conditions  had  become 
less  favorable  for  further  banking  enterprises;  hence  the 
Bank  of  Edwardsville  had  an  even  more  trying  situation 
to  face  than  did  the  former  institution.29 

A  few  months  after  the  bank  began  its  operations  the 
directors  called  for  the  payment  of  the  second  instalment 
on  the  shares  of  stock,  but  the  financial  situation  through- 
out the  country  was  such  that  more  than  five  thousand 
shares  had  to  be  declared  forfeited  for  non-payment.30 
Among  the  letters  of  Ninian  Edwards,  one  of  the  directors 
of  the  bank,  is  one  from  Eichard  M.  Johnson,  afterwards 
vice-president  of  the  United  States,  protesting  against 
such  action  in  the  case  of  General  Payne.  Johnson  inti- 
mates that  those  who  had  been  credited  with  making  a 
second  payment  probably  were  accorded  the  questionable 
privilege  of  borrowing  the  money  from  the  bank  and  using 
their  shares  as  collateral  security.31 

Through  the  offices  of  Edwards,  who  was  then  a  sena- 
tor from  Illinois,  the  secretary  of  the  treasury  designated 
the  Bank  of  Edwardsville  as  well  as  the  Bank  of  Illinois 
a  depositary  of  government  funds.  The  conditions  noted 
in  the  case  of  the  latter  bank  applied  also  to  the  former 
save  that  the  permanent  deposit  of  the  Edwardsville  bank 
was  but  forty  thousand  dollars  instead  of  fifty  thousand.32 
Although  Edwards  did  not  approve  of  Crawford's  system 
of  letting  out  among  a  large  number  of  banks  funds  which 
should  have  been  cared  for  by  the  Bank  of  the  United 
States,  he  preferred  that  the  western  Illinois  collections 
should  be  placed  in  his  bank  rather  than  that  they  should 
be  sent  to  the  Bank  of  Missouri.33    Shortly  after  securing 

29Letter  of  Marshall  to  Edwards,  in  Edwards  Papers,  155. 
30Niles'  Register,  xvii,  186. 

31Edwards  Papers,  162;  see  U.  S.,  H.  of  R.,  18  Cong.,  1  Sess.,  Doc. 
no.  133,  pp.  44,  109.  General  Payne  was  the  brother  in  law  of  Johnson. 
The  members  of  the  Johnson  family  are  said  to  have  held  a  controlling 
interest  in  the  Bank  of  Edwardsville  and  to  have  used  their  political  pres- 
tige to  influence  Secretary  Crawford's  dealings  with  the  bank. 

32Niles'  Register,  xxvi,  291.  U.  S.,  H.  of  R.,  18  Cong.,  1  Sess.,  Doc. 
nos.  128,  133. 

^Wiles'  Register,  xxvi,  141. 


16  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [371 


this  favor  for  the  two  Illinois  banks,  Senator  Edwards 
returned  to  Illinois  only  to  find  that,  the  Edwardsville 
bank  was  having  a  hard  time  with  the  adverse  business 
conditions  which  then  prevailed.34  It  seemed  to  have  even 
greater  difficulty  than  the  Bank  of  Illinois  in  withstanding 
the  severity  of  the  commercial  depression  and  the  on- 
slaught of  their  common  enemies,  the  Bank  of  Missouri 
and  the  receiver  of  the  public  moneys  at  Kaskaskia.35 
The  directors  of  the  Shawneetown  bank,  mindful  of  the 
struggle  that  attended  the  launching  of  their  project,  were 
on  the  whole  friendly  in  their  attitude  toward  the  Bank 
of  Edwardsville,  although  in  the  spring  of  1819  they 
found  it  necessary  to  forbid  their  cashier  to  receive  its 
notes.36  This  action  was  rescinded  soon,  however,  for  the 
officers  of  both  banks  realized  that  they  could  ill  afford 
to  exercise  any  but  the  most  liberal  policy  toward  each 
other's  paper.  In  fact,  John  Caldwell,  an  officer  of  the 
Bank  of  Illinois  suggested  to  Senator  Edwards  that  at 
certain  times  each  bank  should  inform  the  other  as  to  the 
amount  of  the  other's  notes  held  by  it  and  should  make  a 
practice  of  sending  these  notes  as  far  as  possible  from 
the  bank  which  issued  them.  He  urged  that  neither  bank 
present  the  notes  of  the  other  for  redemption  unless  "dire 
^  necessity  compels  the  unpleasant  measure."37 

As  business  conditions  were  daily  growing  less  favor- 
able to  the  bank's  success,  Senator  Edwards  decided  that 
he  could  no  longer  shoulder  the  responsibility  for  the 
safety  of  the  United  States  deposits  which  he  had  procured 
for  the  bank.  Consequently,  he  decided  to  sever  his  con- 
nection with  the  bank's  management,  and  asked  President 
Stephenson  to  notify  Secretary  Crawford  of  his  action. 
Since  Mr.  Stephenson  was  also  receiver  of  public  moneys 
at  Edwardsville,  Mr.  Edwards  urged  him  to  withhold  from 
the  bank  all  government  funds  in  his  possession  until  Mr. 
Crawford  had  had  an  opportunity  to  take  whatever  action 

lies'  Register,  xxvi,  142. 
35U.  S.,  18  Cong.,  1  Sess.,  Report  of  Secy,  of  Treas.,  495. 
38 Edwards  Papers,  156. 

37Letter  of  Caldwell  to  Edwards,  in  ibid.,  158. 


375] 


THE  TERRITORIAL  BANKS 


17 


was  deemed  advisable.  A  few  weeks  later,  Edwards  made 
an  announcement  of  his  resignation  through  the  news- 
paper columns,  but  assured  the  public  that  the  Bank  of 
Edwardsville  was  in  good  condition  and  under  careful 
management.  As  proof  of  the  bank's  soundness,  he  stated 
that  the  amount  of  specie  on  hand  was  more  than  twice 
the  amount  of  outstanding  circulation,  that  none  of  the 
directors  had  borrowed  heavily,  some  of  them  not  at  all, 
and  that  General  Payne,  the  largest  individual  stockholder 
had  never  asked  for  accommodation  and  had  always  urged 
that  the  bank's  affairs  be  conducted  with  the  greatest 
caution.38 

The  financial  situation,  however,  was  rapidly  becom- 
ing more  serious.  As  a  result  of  the  failure  of  the  Bank 
of  Missouri  in  September,  1821,  a  run  was  made  upon  the 
Edwardsville  bank  by  note  holders  from  St.  Louis  and  St. 
Charles.  The  directors  were  warned  the  night  before  of 
their  coming  and  opened  the  doors  of  the  bank  at  seven 
the  next  morning,  keeping  them  open  until  several  hours 
after  closing  time  in  the  evening.  This  policy  was  con- 
tinued for  several  days  in  the  hope  of  restoring  confidence 
but  the  bank  was  soon  compelled  to  suspend  specie  pay- 
ments.39 President  Stephenson  immediately  apprized  Sec- 
retary Crawford  of  the  action  and  assured  him  that  the 
United  States  funds  were  amply  secured.40  Secretary 
Crawford  designated  Edward  Coles,  afterwards  governor 
of  Illinois,  to  adjust  the  claim  of  the  United  States,  but  no 
settlement  was  reached  aside  from  the  transfer  in  trust  of 
a  large  part  of  the  bank's  assets  as  security  for  the  govern- 
ment deposits.41 

Little  is  known  of  the  final  settlement  of  the  bank's 
affairs  save  that  the  assets  dwindled  away  and  the  United 
States  never  recovered  any  part  of  the  f  46,800  on  deposit 

38U.  S.,  H.  of  R.,  18  Cong.,  i  Sess.,  Doc.  no.  133,  pp.  85,  105,  no. 
128,  p.  8. 

39U.  S.,  H.  of  R.,  18  Cong.,  1  Sess.,  Doc.  no.  128,  p.  9;  Edwardsville 
Spectator,  August  21,  1821,  September  11,  1821. 

40U.  S.,  H.  of  R.,  18  Cong.,  1  Sess.,  Report  of  Secy,  of  Treas.,  560. 
"Ibid.,  566. 


18  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [376 


at  the  time  the  bank  closed.42  Senator  Edwards  stated 
that  the  assets  which  were  set  aside  as  security  for  the 
deposit  were  at  the  time  more  than  ample  to  reimburse 
the  government,  but  that  Secretary  Crawford,  out  of  defer- 
ence to  the  Johnsons  and  General  Payne  had  delayed  set- 
tlement until  the  securities  in  trust  had  become  worth- 
less.43 

In  1823  when  a  committee  of  the  House  of  Repre- 
sentatives at  Washington  was  investigating  the  question 
of  public  deposits,  Edwards  was  summoned  to  appear  be- 
fore it.  In  the  course  of  his  examination,  he  repeated  his 
charge  against  Crawford,  adding  that  he  himself  had 
warned  Crawford  long  before  the  bank  failed.  The  next 
year  he  accepted  the  post  of  minister  to  Mexico  and  was 
about  to  leave  for  that  country  when  Secretary  Crawford 
sent  to  the  House  a  stinging  reply  to  the  charge.  He 
denied  that  Edwards  had  given  him  any  intimation  as  to 
the  bank's  condition.  Edwards  immediately  resigned  his 
appointment  and  preferred  formal  charges  against  Craw- 
ford. A  committee  of  the  House  made  a  thorough  investi- 
gation of  the  whole  affair ;  its  conclusion  was  that  "nothing 
has  been  proved  to  impeach  the  integrity  of  the  Secretary 
or  to  bring  into  doubt  the  general  correctness  and  ability 
of  his  administration  of  the  finances."44  They  found  that 
the  evidence  sustained  Edwards  in  his  statement  that  he 
had  published  in  the  newspapers  his  intention  of  with- 
drawing from  the  bank,  but  there  was  no  evidence  that 
either  he  or  the  receiver  of  public  moneys  ever  informed 
Secretary  Crawford  about  the  bank's  condition.  In  fact, 
since  Mr.  Stephenson,  the  receiver,  was  also  the  president 
of  the  bank,  the  committee  thought  it  but  natural  that  he 
should  fail  to  warn  Mr.  Crawford  that  the  bank  was  not  in 
first  rate  condition.  The  committee  urged,  however,  that 
the  practice  of  appointing  the  presidents  of  depositary 
banks  to  be  receivers  of  public  moneys  be  discontinued. 

42U.  S.  Reports  on  Finances,  1829-36,  p.  605. 

^Niles'  Register,  xxvi,  140  ff.,  274,  290;  Edwards,  Life  and  Times  of 
Edwards,  135  ff. 

*4U.  S.,  H.  of  R.,  18  Cong.,  1  Sess.,  Doc.  nos.  128,  133;  Miles'  Regis- 
ter, xxvi.,  174. 


377] 


THE  TERRITORIAL  BANKS 


19 


A  charter  almost  identical  with  the  one  granted  to  the 
Bank  of  Illinois  was  issued  to  the  president,  directors  and 
company  of  the  Bank  of  Kaskaskia  in  1818.45  Had  the 
bank  been  started  earlier  there  is  little  question  but  that  it 
would  have  succeeded.  As  it  was,  even  the  ability  and 
integrity  of  its  officers  and  its  location  in  the  principal 
settlement  and  capital  of  the  territory  were  not  able  to 
neutralize  the  effect  of  the  provision  requiring  that  sub- 
scriptions be  paid  in  gold  and  silver  coin.  This  require- 
ment had  been  met  a  little  over  a  year  before  by  the  stock- 
holders of  the  Bank  of  Illinois,  but  the  territory  was  now 
on  the  eve  of  hard  times  so  the  Bank  of  Kaskaskia  never 
transacted  business.  As  Justice  Shelton  puts  it  in  his  de- 
cision in  the  case  of  the  People  vs.  Lowenthal :  "It  issued 
no  paper  money  and  it  cannot  be  said  to  have  defrauded 
any  man."46 

The  incorporators  of  the  City  and  Bank  of  Cairo 
undertook  to  launch  a  most  pretentious  enterprise  on  the 
site  of  the  present  city  of  that  name.  With  the  idea  of 
founding  a  great  metropolis  they  had  become  the  owners 
of  eighteen  hundred  acres  of  land  at  the  junction  of  the 
Ohio  and  Mississippi  rivers.47  They  were  required  by  the 
charter  to  lay  off  the  site  into  city  lots  which  were  to  be 
sold  at  one  hundred  and  fifty  dollars  each.  Fifty  dollars 
of  this  amount  was  to  be  devoted  to  building  dikes  and 
levees  and  constructing  public  buildings,  while  the  remain- 
ing one  hundred  dollars  was  to  be  used  as  capital  for  a 
bank.48  For  this  sum  two  fifty-dollar  shares  were  to  be 
issued,  one  to  belong  to  the  purchaser  of  the  lot  and  the 
other  to  the  company.  When  five  hundred  lots  had  been 
sold,  a  stockholders'  meeting  was  to  be  held  and  thirteen 
resident  citizens  chosen  as  directors.49  The  bank  was  to 
begin  the  issue  of  notes  as  soon  as  the  money  for  the  lots 

**Laws  of  Illinois,  1817-1818,  p.  82. 

4693  Illinois,  191.  This  same  statement  appears  in  Brown,  History 
of  Illinois,  428,  429. 

*7Laws  of  Illinois,  1817-18,  pp.  72,  73. 
<9Ibid.,  75,  Sectioft^. 

49Laws  of  Illinois,  181 7-1 8,  p.  76-7,  Section  7. 


20  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [378 

was  turned  over  to  its  officers.  Since  the  patronage  of  the 
bank  would  be  too  small  to  justify  its  location  in  the  new 
city  for  some  time,  it  was  provided  that  a  banking  business 
could  be  transacted  at  Kaskaskia  until  the  legislature  saw 
fit  to  "compel  all  business  to  be  done  in  Cairo."50  The 
bank  charter  proper  was  modeled  after  those  granted  to 
the  banks  at  Shawneetown  and  Edwardsville. 

The  bank,  according  to  Governor  Ford,  never  accepted 
its  charter;  hence  no  subscriptions  were  received  nor  any 
organization  perfected.51  Nineteen  years  later  (1837) 
during  the  internal  improvement  excitement  the  old  char- 
ter was  adopted  by  a  new  company  of  the  same  name.52 
Its  history  will  be  taken  up  in  connection  with  the  banking 
operations  of  that  period.  As  for  the  project  of  founding 
a  city,  the  whole  scheme  vanished  into  thin  air  and  Cairo 
was  settled  some  years  later  much  as  other  settlements 
are  established. 

But  one  statement  of  the  condition  of  the  Illinois 
banks  is  available,  namely,  a  composite  balance  sheet 
issued  by  the  secretary  of  the  treasury  in  1819,  when  both 
institutions  were  in  their  prime.  The  statement  shows 
that  only  $140,910  had  ever  been  paid  in  by  the  share  hold- 
ers. The  remaining  liabilities  consisted  of  an  outstand- 
ing circulation  of  $52,021,  government  deposits  to  the 
amount  of  $119,036.92,  individual  deposits  amounting  to 
$32,568.60  and  undivided  profits  to  the  extent  of  $2,994.49. 
On  the  other  hand,  the  loans  and  discounts  amounted  to 
$206,694.32,  almost  as  much  as  the  capital  stock,  circula- 
tion and  private  deposits  combined.  This  indicates  to 
how  small  an  extent  deposit  banking  was  practiced.  The 
deposit  by  the  government  of  the  proceeds  from  the  sale 
of  public  land  provided  the  banks  with  an  unusually  large 
supply  of  specie  ($74,715.51),  large  amounts  of  which  had 
to  be  conveyed  on  short  notice  to  the  Louisville  and  New 
Orleans  branches  of  the  United  States  Bank.  The 
$59,332.18  due  from  other  banks  was  probably  largely 

50Laws  of  Illinois,  1817-18,  76,  81,  Section  22. 

51Greene  and  Thompson,  Governors'  Letter-Bookd,  ii,  6a. 

5°-Ibid. 


379] 


THE  TERRITORIAL  BANKS 


21 


made  up  of  the  notes  of  these  banks  deposited  by  the  re- 
ceivers of  public  moneys.  The  remaining  assets  consisted 
of  $6,614  invested  in  securities  and  $175  in  real  estate. 
The  presence  of  such  relatively  large  amounts  of  gov- 
ernment funds  produced  a  somewhat  abnormal  condition 
and  prevents  one  from  ascertaining  the  real  character 
of  Illinois  banking  at  this  period.53 

A  review  of  the  conditions  which  prevailed  in  Illinois 
during  the  existence  of  the  two  banks  may  serve  the  two 
fold  purpose  of  accounting  more  fully  for  the  brevity  of 
their  existence  and  the  subsequent  unpopularity  of  all 
moneyed  institutions.  The  commerce  of  the  community 
was  still  practically  undeveloped  on  account  of  the  self- 
sufficient  character  of  the  life  and  the  lack  of  means  of 
communication  with  the  outside  world.  A  bank,  there-  ^ 
fore,  was  looked  upon  as  a  mill  for  grinding  out  paper 
money  on  easy  terms  for  speculators.  The  public  lands 
were  sold  at  two  dollars  an  acre,  eighty  dollars  to  be  paid 
down  on  each  quarter  section  and  the  remainder  spread  over 
a  period  of  four  years.54  According  to  Governor  Ford, 
everyone  who  could  borrow  eighty  dollars  worth  of  the 
banks'  paper  invested  it  in  land  with  the  hope  that  he 
could  sell  it  at  a  handsome  profit  to  a  "tenderfoot"  before 
the  obligation  to  the  bank  fell  due.55  Consequently  when 
the  depression  of  1819-20  spread  over  the  West,  it  left 
disaster  in  its  wake.  The  failure  of  the  banks  in  Ohio, 
Kentucky  and  Missouri  left  the  people  of  Illinois  with  a 
quantity  of  worthless  paper  on  their  hands.  Nearly  every- 
one was  hopelessly  in  debt  and  his  lands  liable  to  seizure 
by  the  federal  government.56  The  Illinois  banks  in  order 
to  protect  themselves  at  first  merely  resorted  to  suspen- 
sion of  specie  payment  but  finally  were  compelled  to  close 
their  doors.  In  view  of  such  a  situation,  therefore,  it  is 
surprising  that  they  made  so  creditable  a  showing  as 
they  did. 

53U.  S.,  H.  of  R.,  16  Cong.,  i  Sess.,  Doc.  no.  86,  facing  p.  40. 
54Laws  of  the  U.  S.,  6  Cong.,  1  Sess.,  Ch.  55,  Sec.  5. 
55Ford,  History  of  Illinois,  43;  Wildraan,  Money  inflation  in  the 
United  States,  68. 

56Ford,  History  of  Illinois,  44. 


CHAPTER  III 


Banking  a  State  Monopoly. 

J  When  Illinois  was  admitted  to  the  Union  in  1818 
the  following  provision  was  incorporated  in  her  constitu- 
tion: "There  shall  be  no  other  banks  or  money  institu- 
tions but  those  already  provided  by  law,  except  a  state 
bank  and  its  branches  which  may  be  established  and  regu- 
lated by  the  general  assembly  of  the  state  as  they  may 
think  proper."1  The  principal  influences  underlying  the 
insertion  of  this  provision  probably  were:  (1)  The  state 
of  Indiana  had  adopted  a  similar  course  just  two  years 
before;2  (2)  Experience  with  the  paper  of  irresponsible 
private  banks  had  already  engendered  considerable  feeling 
against  a  further  resort  to  that  means  of  supplying  the 
people  with  a  circulating  medium.  The  conviction  that 
note  issue  could  be  entrusted  only  to  the  state  prevailed 
in  spite  of  the  disastrous  results  that  have  attended  similar 
experiments  in  the  past.3 

It  will  be  noted  that  the  constitution  permitted  the 
banks  chartered  by  the  territorial  legislature  to  continue, 
but  as  has  been  seen  they  soon  went  out  of  existence  and 
left  the  field  clear  for  the  experiment  of  state  banking. 

Much  of  the  future  banking  policy  of  the  state  de- 
pended upon  the  interpretation  to  be  given  to  the  term 
"state  bank."  When  the  question  arose  in  1834,  the  editor 
of  one  of  the  leading  newspapers  made  an  unsuccessful 
search  for  the  records  of  the  constitutional  convention 
of  1818  in  order  to  ascertain  the  ideas  of  the  members  as 
to  what  really  constituted  a  "state  bank."  He  was  able, 
however,  to  interview  several  survivors  of  the  convention, 
all  of  whom  were  of  the  opinion  that  the  constitution  was 

1Article  viii,  Section  ax. 

2Constitution  of  Indiana,  1816,  Article  x,  Section  I. 
3Davidson  and  Stuve,  History  of  Illinois,  305. 

22 


381] 


BANKING  A  STATE  MONOPOLY 


23 


intended  to  delegate  to  the  general  assembly  the  power 
to  establish  an  institution  under  state  control  but  not 
necessarily  owned  by  the  state.  They  merely  desired  to 
stop  the  chartering  of  any  more  banks  that  would  not 
be  responsible  to  the  state  for  their  good  conduct.4 

This  was  evidently  the  interpretation  put  upon  the 
banking  clause  of  the  constitution  by  the  first  state  legis- 
lature, for  they  chartered  a  state  bank  half  of  whose  stock 
was  to  be  sold  to  private  individuals.  Notwithstanding 
the  fact  that  the  bank  could  begin  business  when  it  had 
received  fifteen  thousand  dollars  in  specie,5  this  amount 
was  not  subscribed  and  two  years  later  the  legislature 
repealed  the  charter.6  As  we  have  already  seen,  the  year 
1819  was  a  very  unpropitious  time  for  attempting  to 
launch  any  enterprise  which  required  specie  payments. 
However,  a  brief  review  of  the  provisions  of  the 
act  may  be  of  value  in  throwing  light  upon  the  ideas  of 
our  early  lawmakers  as  to  the  kind  of  bank  that  would 
best  meet  the  conditions  that  confronted  them. 

The  parent  bank  was  to  be  established  at  the  seat  of 
government  and  removed  whenever  it  was  removed.7  Two 
million  dollars  worth  of  shares  was  open  to  individual 
subscription  and  a  like  amount  was  available  for  the  state 
whenever  the  legislature  felt  justified  in  making  the  neces- 
sary appropriations.  The  liabilities  of  the  institution 
other  than  capital  were  never  to  exceed  two  million  dollars. 
The  senate  and  house  of  representatives  by  joint  ballot 
were  to  choose  six  of  the  twelve  directors.  No  judge  or 
member  of  the  legislature  could  serve  as  director.8  Ten 
per  cent  of  the  stock  was  to  be  paid  for  in  specie  or  its 
equivalent.9  If  the  bank  refused  to  redeem  its  obligations 
in  specie  on  demand,  a  penalty  of  twelve  per  cent  interest 
was  added  to  the  amount  of  the  obligation.10 

ASangamo  Journal,  January  25,  1834. 

5Laws  of  Illinois,  1819,  p.  151  ff.,  Section  5. 

*Ibid.,  1 82 1,  p.  93. 

7 Ibid.,  1819,  p.  151,  ff.,  Section  1. 

sIbid.,  Section  3. 

9Ibid.,  Section  4. 

™Ibid.,  Section  5. 


24  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [382 

The  legislature  evidently  soon  recognized  the  hope- 
lessness of  expecting  the  bank  to  accumulate  the  required 
amount  of  specie  so  it  supplemented  the  charter  during 
the  same  session  at  which  it  was  passed  by  providing  that 
in  paying  for  bank  stock,  the  state  auditor's  warrant 
should  be  considered  as  good  as  specie.11  But  even  this 
inducement  failed  to  effect  the  desired  result.  In  the  mean- 
time there  set  in  the  general  collapse  of  banks  and  other 
business  enterprises,  described  in  connection  with  the  dis- 
cussion of  the  territorial  banks.  So  utterly  hopeless  was 
the  condition  of  the  people  that  a  clamor  for  government 
aid  arose. 

Notwithstanding  the  vigorous  message  of  Governor 
Bond  in  which  he  pointed  out  the  folly  of  establishing  a 
bank  for  the  sole  purpose  of  relieving  individual  distress, 
a  bill  was  introduced  in  the  next  legislature  for  the  estab- 
lishment of  a  bank  based  wholly  on  the  credit  of  the  state. 
One  would  suppose  that  the  mere  suggestion  of  being  able 
to  borrow  from  the  state  upon  easy  terms  sufficient  cur- 
rency to  tide  over  the  hard  times  would  meet  the  un- 
qualified approval  of  a  community  hopelessly  in  debt. 
But  the  opposition  to  the  scheme  was  not  solely  on  the 
part  of  the  group  of  enlightened  and  disinterested  legis- 
lators who  contested  the  measure  every  step  of  the  way. 
Mass  meetings  were  held  to  protest  against  the  adoption 
of  the  project.12  At  a  meeting  of  the  citizens  of  Bond 
County  it  was  resolved  that  "the  legitimate  object  of  bank- 
ing institutions  is  to  afford  a  safe  and  convenient  medium 
for  the  emission  of  loans  founded  on  solid  capital  and  not 
a  project  of  needy  individuals  for  the  creation  of  funds; 
that  whenever  the  emission  of  paper  by  any  banking 
institution  does  not  depend  upon  the  ability  to  redeem  it 
promptly  in  specie  the  community  can  have  no  assurance 
that  it  will  not  be  extravagant,  and  no  reasonable  hope 

xlLaws  of  Illinois,  1819,  p.  299. 

12Edwardsville  Spectator,  February  13,  1821.  The  action  taken  by  the 
citizens  of  Crawford,  Randolph  and  Gallatin  counties  was  embodied 
in  resolutions  and  forwarded  to  the  legislature.  House  Journal,  1820-21, 
p.  227. 


383] 


BANKING  A  STATE  MONOPOLY 


25 


that  it  may  ever  be  redeemed."  It  was  further  urged  that 
such  an  act  would  be  unconstitutional  in  that  it  would 
impair  the  obligation  of  contracts.13  On  the  other  hand, 
the  passage  of  the  measure  was  urged  on  the  ground  that 
it  is  the  duty  of  the  state  in  time  of  great  pecuniary  em- 
barrassment to  afford  such  measure  of  relief  to  prevent 
the  "unnecessary  and  wanton  sacrifices  of  the  property 
and  possessions  of  the  citizens  of  the  state."14 

The  bill,  however,  passed  both  houses  by  a  very  close 
vote  after  its  discussion  had  consumed  a  fourth  of  the 
time  of  the  session.15  Governor  Ford  cites  the  election  of 
its  sponsor,  Richard  M.  Young,  to  the  United  States  senate 
as  one  of  the  many  examples  in  the  history  of  the  state 
of  the  forgiving  nature  of  the  people  in  the  case  of  men 
who  have  been  active  in  the  passage  of  harmful  legis- 
lation.16 

The  constitution  of  1818  required  that  all  bills  receive 
the  approval  of  the  council  of  revision  which  was  com- 
posed of  the  governor  and  the  judges  of  the  supreme  court. 
When  the  act  in  question  came  before  the  council  it  re- 
ceived a  unanimous  veto  and  was  sent  back  to  the  House 
for  further  consideration.17  The  note  accompanying  the 
rejected  measure  gave  as  the  reason  for  the  unfavorable 
action  that  the  State  of  Illinois  had  no  right  to  establish 
a  loan  office  scheme  in  the  face  of  the  prohibition  in  the 
federal  constitution  against  the  emission  of  bills  of  credit.18 
It  had  been  decided  that  a  bill  payable  on  demand  out 
of  a  specified  fund  was  not  a  bill  of  credit,  but  the  council 
held  that  bills  of  a  state  payable  at  some  future  time  were 
clearly  not  included  in  the  meaning  of  that  decision  and 
therefore  came  under  the  ban  of  the  United  States  con- 
stitution.   They  further  justified  their  veto  with  the  pre- 

lsHouse  Journal,  1820-21,  p.  227. 

14Mass  meeting  of  the  citizens  of  Madison  County.  Edwardsville 
Spectator,  March  20,  1821. 
^Niles'  Register,  xx,  48. 
16Ford,  History  of  Illinois,  46. 
17 Ibid. 

18Article  I,  Section  x. 


26  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [384 


diction  that  a  train  of  evils  would  follow  the  adoption  of 
the  bank  measure.  They  urged  that  some  other  means 
be  found  to  relieve  the  popular  distress  than  the  issue  of 
notes  which  would  not  circulate  in  interstate  commerce 
and  would  not  provide  a  satisfactory  medium  of  exchange 
even  at  home.19 

In  the  house  of  representatives  the  bill  and  objections 
were  referred  to  a  committee  which  recommended  the 
passage  of  the  bill  over  the  council's  veto.  Their  reply  to 
the  objections  of  the  council  was :  (1)  A  bank  note  issued 
by  a  state  bank  was  not  a  bill  of  credit  because  the  state 
did  not  propose  to  make  the  notes  legal  tender;  (2)  The 
council  signed  the  bill  creating  a  state  bank  in  1819; 
(3)  Congress  when  it  admitted  Illinois  to  the  Union  ap- 
proved her  constitution  even  though  it  reserved  banking 
privileges  to  the  state;  (4)  If  other  states  did  refuse  to 
receive  Illinois  paper  the  citizens  of  Illinois  would  have 
more  for  their  own  use.20  When  the  motion  to  repass  the 
bill  came  before  the  House,  Mr.  McLean,  the  speaker,  a 
bitter  opponent  of  the  whole  scheme,  resigned  the  chair 
in  order  to  fight  the  bill  because  the  rules  forbade  the 
speaker  to  address  the  House  and  the  friends  of  the  bank 
measure  refused  to  go  into  a  committee  of  the  whole.  He 
was  promptly  re-elected,  however,  and  the  House  went  into 
a  committee  of  the  whole  in  order  to  give  him  an  oppor- 
tunity to  express  his  views.  Notwithstanding  the  high 
regard  of  the  members  for  Mr.  McLean  and  his  eloquent 
arguments  in  support  of  the  council's  position,  the  House 
repassed  the  bill  by  a  vote  of  seventeen  to  ten.21  Four  of 
the  ten  who  opposed  the  measure  framed  a  formal  protest 
against  the  action  of  the  House  and  succeeded  in  having 
it  spread  upon  the  records.    The  significant  feature  of 

19House  Journal,  1820-21,  p.  236.  Edwardsville  Spectator,  February 
13,  1821. 

20 House  Journal,  1820-21,  p.  261  ff. 

21  Ford's  account  of  this  incident  (History  of  Illinois,  46)  does  not 
tally  in  every  respect  with  the  record  of  the  proceedings  of  the  legisla- 
ture for  February  6,  1821.  House  Journal,  1820-21,  pp.  271  ff. ;  Edwards- 
■ville  Spectator,  February  13,  1821. 


385] 


BANKING  A  STATE  MONOPOLY 


27 


the  document  i#  its  declaration  that  all  banks  are  detri- 
mental to  the  morals  of  the  people  and  a  menace  to  popular 
liberty  even  when  they  are  established  upon  a  specie  basis. 
They  laid  the  then-existing  crisis  in  the  United  States  at 
the  door  of  banks  and  predicted  that  the  State  Bank  of 
Illinois  would  becoine  the  tool  of  the  political  demagog 
&nd  the  artful  politician.22 

On  the  same  day  the  bill  was  forwarded  to  the  senate 
where  it  received  just  enough  votes  to  pass  it  over  the 
council's  veto.23  One  of  the  eight  men  who  gave  their 
votes  for  the  measure  immediately  received  the  appoint- 
ment of  cashier  of  one  of  the  branches  of  the  bank,24  a 
direct  violation  of  the  state  constitution.25 

The  bill  in  its  final  form  provided  for  the  establish- 
ment of  the  State  Bank  of  Illinois  at  Vandalia,  the  new 
state  capital.  The  capital  stock  was  not  to  exceed  five 
hundred  thousand  dollars  and  was  to  be  owned  entirely 
by  the  state.26  The  bank  was  to  do  business  for  ten  years 
and  was  permitted  to  hold  property  up  to  double  the 
amount  of  its  capital  stock.27  In  order  that  no  partiality 
be  shown  to  any  section,  branch  banks  were  provided  for 
the  towns  of  Edwardsville,  Shawneetown,  Palmyra,28  and 
Brownsville.29  The  state  was  then  districted  in  such  a 
22House  Journal,  1820-21,  pp.  22y-2g. 

23The  Illinois  constitution  of  1818  (Article  iii,  Section  19)  provided 
that  if  after  consideration  the  bill  was  approved  in  both  houses  by  a 
majority  of  all  members  elected,  it  became  a  law  without  the  consent  of 
the  council  of  revision. 

24Alton  Spectator,  January  25,  1834. 

25Article  ii,  Section  19. 

2fiLaws  of  Illinois,  1821,  pp.  80  ff.,  Section  1. 

27Ibid.,  Section  2. 

28This  village,  now  deserted,  was  the  first  county  seat  of  Edwards 
County  when  the  boundaries  of  the  county  extended  to  Canada.  For 
some  years  it  was  a  thriving  market  town,  but  the  location  was  so 
unhealthful  that  it  was  finally  abandoned.  McDonough,  History  of 
Edzvards,  Lawrence  and  Wabash  Counties,  238. 

29At  this  time  Brownsville  was  the  county  seat  of  Jackson  County 
and  contained  a  population  of  over  five  hundred,  ranking  next  to 
Shawneetown  and  Kaskaskia.  However,  the  collapse  of  the  state  bank 
and  several  other  misfortunes  caused  the  town  to  be  abandoned.  Illinois 
State  Historical  Society,  Transactions,  1905,  p.  372. 


28  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [386 


manner  that  every  county  was  assigned  to  the  principal 
bank  or  one  of  the  branches.30 

The  president  and  the  six  directors  of  the  parent 
bank  and  five  directors  for  each  of  the  branches  were  to 
be  chosen  biennially  by  joint  ballot  of  the  two  houses  of 
the  legislature.  In  choosing  the  branch  directors,  how- 
ever, proper  geographical  distribution  must  be  made.31 
The  selection  of  all  other  officers  was  left  to  the  respective 
boards  of  directors.  Although  the  state  was  the  sole  owner 
and  beneficiary  of  the  enterprise,  its  total  appropriation 
for  getting  the  institution  under  way  was  the  two  thous- 
and dollars  provided  for  the  purchase  of  bank  note  plates.32 
For  the  time  being  only  three  hundred  thousand  dollars 
was  to  be  printed  and  issued,  the  issue  of  the  remaining 
two  hundred  thousand  being  left  to  the  will  of  the  next 
legislature.33 

The  denominations  provided  for  were  ones,  twos, 
threes,  fives,  tens  and  twenties.  It  was  required  that 
every  note  should  read :   "The  President  and  Directors  of 

the  State  Bank  of  Illinois  promise  to  pay  to  or 

bearer  the  sum  of  Dollars,  agreeably  to  the 

provision  of  the  charter  of  this  institution,  with  interest 
thereon  at  the  rate  of  two  per  cent  per  annum.  Receiv- 
able at  all  times  for  debts  due  the  State  or  the  Bank."34 

As  soon  as  the  notes  were  ready  they  were  distributed 
to  the  bank  and  branches  according  to  the  population  of 
their  respective  districts.  The  banks  were  required  to 
deal  with  all  persons  alike.35  A  borrower  must  apply 
only  to  the  bank  in  his  own  district  and  no  one  person 
was  to  receive  a  loan  of  more  than  a  thousand  dollars.  If 
the  amount  of  the  loan  exceeded  a  hundred  dollars,  pay- 
ment must  be  secured  by  a  mortgage  on  unincumbered 

Z0Laws  of  Illinois,  1821,  pp.  80  ff.,  Section  4. 
31Ibid.,  Section  5. 
»*/&&.,  Section  8. 
33Ibid.,  Section  9. 

S4Ibid.,    All  unauthorized  issues  of  paper  currency  within  the  state 
were  forbidden  under  a  penalty  of  $10,000. 
35Ibid.,  Section  12. 


387] 


BANKING  A  STATE  MONOPOLY 


29 


real  estate  worth  at  least  twice  the  amount  of  the  mort- 
gage. Loans  of  a  hundred  dollars  or  less  could  be  made 
upon  personal  security  approved  by  a  two-thirds  vote  of 
the  directors  present  at  the  meeting  at  which  the  loan 
was  under  consideration.36  A  uniform  interest  rate  of  six 
per  cent  was  established  for  all  loans. 

The  bank  was  made  the  sole  depositary  of  the  state's 
funds  and  in  so  far  as  these  funds  consisted  of  specie  or 
its  equivalent  the  bank  could  make  them  the  basis  of  a 
further  note  issue  up  to  twice  their  amount.  This  issue, 
however,  must  be  redeemed  in  gold  or  silver  on  demand37 
while  the  state  allowed  itself  ten  years  to  redeem  the 
regular  issue,  one  tenth  to  be  redeemed  and  retired  an- 
nually.38 The  issue  based  upon  state  funds  was  forbidden 
by  an  act  of  1823,  but  the  state  in  other  ways  continued 
for  ten  years  to  misuse  the  funds  granted  to  the  common 
schools  by  the  United  States.39  The  bank  was  required 
to  show  great  leniency  to  its  debtors.  Their  loans  must 
be  considered  standing  accommodations  renewable  from 
year  to  year  if  necessary,  upon  payment  of  ten  per  cent 
of  the  principal.40 

In  order  to  safeguard  the  interests  of  the  state  the 
branch  banks  were  required  to  report  semi-annually  to 
the  principal  bank  and  these  reports  were  incorporated 
in  the  biennial  report  of  the  bank  to  the  legislature.  Com- 
mittees of  the  legislature  were  to  be  permitted  to  examine 
the  bank  at  any  time.41 

The  original  act  provided  that  the  president  of  the 
parent  bank  should  receive  in  lieu  of  a  salary  the  right 
to  borrow  two  thousand  dollars  more  than  he  could  other- 
wise have  borrowed.42  But  at  the  same  session  it  was 
provided  that  he  should  receive  a  cash  salary  of  eight 


3*Laws  of  Illinois,  1821,  pp.  80  ff.,  Section  12. 
37Ibid.,  Section  36. 
38Ibid.,  Sections  23,  29. 

39Sumner,  History  of  Banking  in  All  Nations,  i,  157. 
A0Laws  of  Illinois,  1821,  pp.  86  ff.,  Section  14. 
41 1 bid.,  Section  17. 
*2Ibid.,  Section  18. 


30 


THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [388 


hundred  dollars  instead  of  tlie  extra  accommodation  at 
the  bank.43  However,  branch  presidents  and  directors 
were  granted  additional  loans  of  a  thousand  dollars  and 
seven  hundred  fifty  dollars  respectively.44  Cashiers  were 
to  be  paid  a  salary  of  not  more  than  eight  hundred 
dollars.45 

As  was  the  case  with  the  territorial  banks  the  legis- 
lature was  forbidden  by  the  federal  constitution  to- make 
the  notes  legal  tender,  but  it  sought  to  accomplish  the 
same  end  by  the  usual  indirect  methods,  namely,  making 
the  notes  legal  tender  for  all  public  dues  within  the  state46 
and  providing  that  the  execution  of  judgments  should  be 
suspended  for  three  years  ^if  the  plaintiff  were  unwilling 
to  accept  the  state  bankj>dtes. 

The  legislature  proceeded  to  elect  the  president  and 
directors  of  the  bank  and,  in  accordance  with  a  supple- 
mentary act  of  1823,  the  cashier  of  the  parent  bank.  The 
bank  began  making  loans  in  July,  1821,  and  everj^one  who 
could  offer  the  necessary  security  obtained  his  share  of 
the  three  hundred  thousand  dollars.47  According  to  Ford, 
a  large  number  of  the  bank's  officers  were  members  of  the 
legislature48  and  all  of  them  professional  politicians  who 
were  then,  or  expected  to  be,  candidates  for  office  so  they 
were  unwilling  to  risk  their  popularity  by  a  too  close 
scrutiny  of  the  kind  of  security  offered.  Moreover,  they 
were  merely  the  agents  of  a  state  lending  her  credit  to 
her  indigent  citizens  and  felt  no  keen  sense  of  personal 
responsibility.49 

43 Laws  of  Illinois,  1821,  144. 
"Ibid.,  Section  18. 
4aIbid.,  Section  19. 
46Ibid.,  Section  9. 

47Edwardsville  Spectator,  July  3,  1821.  In  the  same  newspaper  in  its 
issue  of  August  14,  1821,  is  an  account  of  the  meeting  of  the  directors  of 
the  Edwardsville  Branch  at  which  the  entire  share  of  the  district,  more 
than  $80,000,  was  loaned  upon  personal  security  in  sums  of  $100  or  less. 

48The  names  of  the  president  and  directors  of  the  bank  are  given  in 
the  House  Journal  (2  Sess.,  1  G.  A.)  68.  None  of  the  persons  mentioned 
in  this  list  was  a  member  of  the  general  assembly. 

49Ford,  History  of  Illinois,  47.  Article  on  Illinois  by  W.  H.  Brown, 
in  Chicago  American,  December  25,  1840. 


389] 


BANKING  A  STATE  MONOPOLY 


31 


As  far  as  the  larger  transactions  were  concerned,  the 
neAv  bills  for  a  time  supplied  the  demand  for  a  circulating 
medium,  but  there  was  still  no  provision  for  small  change. 
Minor  coins  were  as  scarce  as  those  of  larger  denomina- 
tion; hence  the  practice  arose  of  tearing  the  bank  notes 
into  halves,  quarters,  etc.,  in  order  to  make  change.50  This 
practice  received  the  official  sanction  of  the  bank  in  1823 
when  its  directors  authorized  the  tearing  of  all  notes  of 
five  dollars  or  less  denomination  and  offered  to  receive 
portions  of  notes  in  payment  of  all  obligations  to  it.51 

The  members  of  the  general  assembly  believed  that 
the  bills  of  the  bank  would  be  on  a  par  with  gold  and 
went  so  far  in  this  belief  as  to  pass  resolutions  calling 
upon  the  treasury  department  at  Washington  to  accept  the 
Illinois  bank  notes  as  the  equivalent  of  specie.52  Accord- 
ing to  Ford's  oft-quoted  account,  when  the  matter  came 
to  a  vote  in  the  state  senate,  Lieutenant-Governor  Menard, 
a  shrewd  old  French  pioneer,  put  the  motion  as  follows: 
"Gentlemen  of  de  Senate,  it  is  moved  and  seconded  dat  de 
notes  of  dis  bank  be  made  land  office  money.  All  in  favor 
of  dat  motion  say  'aye.'  All  against  it  say  'no.'  It  is 
decided  in  de  affirmative.  And  now  gentlemen,  I  bet  you 
one  hundred  dollars  he  never  be  made  land  office  money."53 

It  was  not  long  until  the  dire  prediction  of  those  who 
had  opposed  the  establishment  of  the  bank  began  to  be 
fulfilled.  The  notes  which  never  were  accepted  on  a  par 
with  gold  soon  began  to  depreciate  still  further  and  in  a 
few  weeks  after  the  bank  opened  were  quoted  at  seventy- 
five  cents  on  the  dollar.54  A  month  later  they  had  reached 
sixty-twro  and  one-half  cents55  and  kept  on  sinking  until 
1823  when  they  remained  at  about  thirty  cents  until  1825.56 


^Illinois  Intelligencer,  March  15,  1823;  Ford,  History  of  Illinois,  47. 
^Illinois  Intelligencer,  March  15,  1823. 
52Ford,  History  of  Illinois,  45. 
™Ibid. 

54W.  F.  Baker,  in  Bankers  Magazine,  ix,  12. 

s "'Advertisements  in  the  Edwardsville  Spectator,  October  16,  1821. 
56Article  by  W.  H.  Brown,  in  Chicago  American,  December  25.  1840. 
The  editor  of  Niles'  Register  (xxiv,  342)  reports  having  received  a  sub- 


32  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [390 


After  that  year  there  was  a  rise  in  value  due  to  the  adop- 
tion by  the  state  of  measures  which  will  be  considered  at 
a  later  stage. 

Several  causes  contributed  to  this  utter  failure  of  the 
notes  to  maintain  their  standing  in  the  eastern  money 
market.  In  the  first  place,  no  provision  was  made  for  the 
redemption  of  the  notes  in  specie  on  demand.  The  parent 
bank  received  some  specie  for  a  time,  most  of  it  as  the 
depositary  of  state  funds  received  from  the  federal  gov- 
ernment. But  aside  from  this  limited  amount  not  a  dollar 
in  specie  was  paid  into  the  treasury.57  When  upon  one 
occasion  one  of  the  branches  received  two  dollars  in  specie 
from  a  customer  they  were  placed  upon  exhibition  as 
curiosities.58  The  loss  of  its  building  and  fixtures  in 
January,  1823,59  by  fire  compelled  the  parent  bank  to  keep 
its  specie  in  a  box  fastened  with  a  padlock.  In  March  of 
the  same  year,  robbers  broke  into  the  temporary  quarters 
of  the  bank  and  carried  off  $4,200,  "a  large  part  of  its 
specie."60  From  these  bits  of  evidence  it  can  readily  be 
seen  that  the  bank  was  in  no  position  to  maintain  its  notes 
at  a  parity  with  gold. 

In  the  next  place,  the  bank's  debtors  failed  to  take  the 
right  attitude  towards  their  obligations.  The  Edwardsville 
Spectator  soon  after  the  first  loans  were  made  in  that  dis- 
trict complained  that  the  greater  part  of  the  borrowers 
instead  of  paying  their  honest  debts  squandered  the  money 
for  "purposes  worse  than  useless."61  They  looked  upon  the 
issue  as  a  gift  from  the  state  which  could  be  paid  back  or 
not  as  they  saw  fit.62  Other  borrowers  of  the  bank's  notes 
eased  their  consciences  with  the  assurance  that  the  notes 
were  bills  of  credit  and  therefore  the  whole  scheme  was 

scription  from  an  Illinois  gentleman  who  complained  that  it  cost  him 
twelve  dollars  in  Illinois  currency  to  obtain  the  five  dollars  in  United 
States  money  inclosed. 

57Edwards,  Life  and  Times  of  Edwards,  207. 

58Baker,  in  Bankers  Magazine,  ix,  12 ;  Brown,  History  of  Illinois,  433. 

59Illinois  Intelligencer,  February  I,  1823. 

60Ibid.,  March  29,  1823. 

61December  11,  1821. 

62Ford,  History  of  Illinois,  47. 


391] 


BANKING  A  STATE  MONOPOLY 


33 


unconstitutional.03  The  question  was  taken  into  the  courts 
and  a  decision  was  rendered  by  the  supreme  court  of  Illi- 
nois in  1826.  It  was  decided  that  the  borrower  of  a  bank's 
paper  cannot  be  released  from  his  obligation  by  raising  the 
contention  that  the  bank's  charter  is  unconstitutional.64 
The  court  ignored  the  real  issue  of  the  constitutionality  of 
the  bank's  paper  until  1833,  two  years  after  the  expiration 
of  its  charter.  It  was  then  held  that  a  promissory  note 
given  in  consideration  of  such  bills  is  void  and  cannot  be 
collected  by  law.65  If  this  latter  decision  had  come  some 
eight  or  ten  years  earlier  it  would  probably  have  placed  the 
state  in  an  even  more  embarrassing  position  than  the  one 
it  was  forced  to  occupy  until  it  had  settled  the  bank's 
affairs. 

In  the  third  place,  the  series  of  ultra-liberal  measures 
granting  relief  to  debtors  complicated  the  financial  situa- 
tion in  the  state.  We  have  already  noted  the  provision  in 
the  bank's  charter  granting  a  stay  of  execution  where  the 
plaintiff  refused  to  accept  bank  notes  from  the  debtor.  At 
the  same  session,  the  legislature  added  the  provision  that 
even  if  the  plaintiff  did  signify  his  willingness  to  accept 
state  currency,  the  defendant  could  have  a  replevin  of  sixty 
days.  The  execution  of  all  contracts  calling  for  gold  and 
silver  was  stayed  from  one  to  five  months  according  to  the 
amount  of  the  debt.  All  judgments  of  justices  of  the  peace 
could  also  be  stayed  for  thirty  days.  These  measures, 
while  on  their  face  either  of  no  significance  to  the  bank  or 
else  actually  showing  favor  to  its  notes,  still  did  a  great 
deal  to  engender  a  spirit  of  disregard  of  the  sacredness  of 
one's  obligations.  The  bank  undoubtedly  lost  far  more 
from  the  prevalence  of  this  spirit  than  it  gained  from  the 
favor  shown  its  notes.  The  great  depreciation  of  the 
bank's  notes  ought  in  itself  to  have  afforded  sufficient 
relief  to  debtors  but  the  legislature  in  1825  granted  further 
aid  to  that  class  by  making  the  warrants  of  the  state  audi- 

63Edwards,  Life  and  Times  of  Edwards,  175. 

64Snyder  vs.  President  and  Directors  of  the  State  Bank,  Breese,  161. 
65Linn  vs.  President  and  Directors  of  the  State  Bank,  1  Scammon  87. 


34  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [392 


tor  receivable  at  the  bank.66  With  the  appreciation  of  the 
bank's  notes  referred  to  above,  began  another  series  of  re- 
lief laws  which  will  be  dealt  with  in  another  connection. 

Lastly,  when  we  consider  that  the  bank  had  twenty- 
six  directors,  each  of  whom  was  entitled  to  a  loan  of  seven 
hundred  fifty  dollars  in  addition  to  his  individual  borrow- 
ings, and  four  branch  presidents,  each  entitled  to  addi- 
tional loans  of  a  thousand  dollars,  we  can  readily  agree 
with  Governor  Edwards'  view  of  the  situation.  In  his 
inaugural  message  of  1826,  Governor  Edwards  pointed  out 
to  the  legislature  that  the  bank's  officers  had  borrowed 
"to  the  full  limit  of  the  law  and  thus  became  more  in- 
terested than  any  other  class  in  the  community  in  im- 
pairing the  credit  of  the  institution  and  depreciating  its 
notes,  as  the  means  of  facilitating  the  discharge  of  the 
j  debts  they  had  contracted  with  it."  They  felt  that  there 
was  no  need  of  paying  obligations  which  could  eventually 
be  shifted  upon  the  whole  community  in  the  form  of  state 
taxes.67  By  borrowing  to  the  full  limit  allowed  individuals 
in  addition  to  their  accommodation  as  directors,  these 
men  were  enabled  to  divert  $53,500,  or  more  than  one 
sixth  of  the  total  issue  of  notes,  to  their  own  selfish  ends. 
In  some  cases  they  transferred  their  right  to  borrow  to 
their  friends,  thereby  enabling  them  to  exceed  the  lawful 
loan  limit.68 

It  is  little  to  be  wondered  at,  therefore,  that  the  whole 
venture  was  doomed  to  failure  from  its  very  birth  and 
that  but  two  years  after  its  inception,  state  bank  notes 
were  quoted  at  but  thirty  cents  on  the  dollar. 

The  effect  of  the  depreciated  notes  was  now  so  keenly 
felt  that  both  friends  and  foes  of  the  original  project 
united  in  asking  the  next  legislature,  to  which  had  been 
left  the  option  of  issuing  an  additional  two  hundred  thous- 
and dollars,  not  to  exercise  this  privilege.  The  bill  which 
sought  to  provide  such  an  issue  was  accordingly  defeated 


6GLaws  of  Illinois,  1824-25,  p.  84. 

67Message  of  Governor  Edwards,  Senate  Journal,  1826-27,  p.  54. 
«*Ibid. 


393] 


BANKING  A  STATE  MONOPOLY 


35 


in  the  lower  house  by  a  vote  of  nine  to  twenty-four.69  The 
few  friends  of  the  measure  then  attempted  to  secure  the 
adoption  of  a  resolution  providing  for  the  submission  of 
the  question  to  the  people  at  a  special  election;  but  this 
project  met  a  like  fate.70  A  number  of  measures  calcu- 
lated to  remedy  the  whole  situation  were  introduced,  but 
no  action  of  consequence  was  taken.  In  accordance  with 
a  joint  resolution  of  the  two  houses,  a  committee  was  ap- 
pointed to  investigate  the  affairs  of  the  bank  and  re- 
ported: (1)  that  they  had  examined  the  papers  and 
cash  of  the  principal  bank  and  found  that  they  tallied 
with  the  annual  report  of  December  11,  1822;  (2)  that 
little  satisfaction  could  be  had  in  examining  the  books 
of  the  branches  on  account  of  their  poor  bookkeeping  and 
failure  to  make  reports;  (3)  that  the  different  branches 
should  be  required  to  obey  the  law  in  the  matter  of  trans- 
mitting regularly  to  the  parent  bank  their  share  of  the 
one-tenth  of  the  notes  that  was  to  be  destroyed  each  year. 
They  recommended  the  creation  of  a  responsible  com- 
mittee whose  members  would  see  to  it  that  the  retired 
issue  was  actually  destroyed.  They  expressed  the  opinion 
that  such  a  measure  would  restore  public  confidence  in 
the  remaining  notes.71  The  legislature  took  little  notice 
of  the  report  of  the  committee  aside  from  the  passage  of 
an  act  requiring  the  cashiers  of  the  branches  "to  make 
out  and  transmit  to  the  cashier  of  the  principal  bank  by 
the  first  of  January  of  each  year  a  complete  abstract  of 
their  discount  books  for  the  year  past."  They  reduced  the 
salary  of  the  president  of  the  principal  bank  to  two  him-  y 
dred  dollars  and  increased  the  salary  of  the  cashier  to  a 
thousand  dollars.72 

When  the  next  legislature  met  in  December,  1824,  the 
necessity  for  action  was  so  great  that  it  could  no  longer 
be  ignored.    Governor  Coles  in  his  message  censured  the 

"Illinois  Intelligencer,  January  4,  1823. 
70 Alton  Spectator,  February  11,  1834. 

71House  Journal,  1822-23,  p.  108;  Illinois  Intelligencer,  January  11, 
1823. 

12 Laws  of  Illinois,  1822-23,  p.  181. 


36  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [394 


legislature  of  1820-21  for  its  hasty  action  in  interpreting 
as  the  pressure  of  the  times  a  condition  which  was  largely 
the  result  of  excessive  issues  of  paper.  But  now  that 
the  evil  had  been  done,  he  recommended  the  strictest 
publicity  of  all  the  bank's  accounts  and  the  passage  of 
such  measures  as  would  expedite  the  speedy  dissolution 
of  the  bank  upon  the  expiration  of  its  charter  without  loss 
to  the  state.73  Accordingly  a  law  was  enacted  providing 
for  the  appointment  of  three  commissioners  to  make  a 
thorough  examination  of  the  Shawneetown  branch  bank, 
whose  officers  seem  to  have  been  under  suspicion.74 

The  act  further  instructed  the  cashier  of  this  branch 
to  deliver  to  the  cashier  of  the  main  bank  the  whole  amount 
of  the  ten  per  cent  fund  which  was  supposed  to  be  retired 
and  destroyed  every  year.  A  penalty  of  $1000.00  was 
provided  if  the  cashier  or  other  officers  hindered  the  work 
of  the  commissioners.75  A  joint  committee  appointed  to 
ascertain  the  condition  of  the  whole  institution  revealed 
the  fact  that  thus  far  the  expenses  of  the  principal  bank 
had  exceeded  its  discounts  by  $2,403.90.  The  Browns- 
ville branch  had  also  been  run  at  a  loss,  but  the  Edwards- 
ville  and  Palmyra  branches  each  had  a  small  balance. 
The  Shawneetown  branch  had  been  conducted  in  so  loose 
a  manner  that  it  was  impossible  to  ascertain  its  true  condi- 
tion. The  cashier  had  made  a  loan  of  $3750  without 
security  and  was  unable  to  account  for  $4800  additional.76 
The  legislature  took  no  immediate  action  against  the 
Shawneetown  officers  but  three  months  later  by  joint 
resolution  it  authorized  Governor  Coles  to  appoint  a 
competent  accountant  to  make  a  thorough  examination  of 
the  books.77  This  appointment  was  made  and  the  affairs 
of  the  bank  carefully  investigated,  but  the  books  were  in 


73Governor's  message,  1824. 

7 4  Laws  of  Illinois,  1824-25,  p.  16,  Section  1. 

75Ibid.,  Section  2. 

76Knox,  History  of  Banking  in  the  United  States,  716;  House  Journal, 
1824-25,  p.  203 ;  Senate  Journal,  1824-25,  p.  217. 
77Lazvs  of  Illinois,  1824-25,  p.  185. 


395] 


BANKING  A  STATE  MONOPOLY 


37 


such  unintelligible  shape  as  to  throw  little  light  upon  the 
bank's  real  condition.78 

So  involved  were  the  members  of  the  legislature  and 
their  friends  in  the  affairs  of  the  bank  that  no  action  re- 
sulted directly  from  either  investigation.79  In  the  mean- 
time, however,  a  reform  act  was  passed  supplementary  to 
the  act  establishing  the  bank.  It  provided  that  the  cashier 
of  the  principal  bank  should  collect  all  notes  as  soon  as 
possible  and  all  those  not  yet  signed  and  proceed  to  burn 
them  in  the  public  square  at  Vandalia  in  the  presence  of 
the  governor  and  judges  of  the  supreme  court.80  There- 
after when  the  treasurer  of  the  state  paid  out  a  bank  note 
it  was  to  bear  the  stamp  "re-issued"  and  no  interest  could 
be  collected  by  the  holder.81  Cashiers  of  the  branches  were 
required  to  forward  semi-annually  for  retirement  and 
burning  all  notes  repaid  by  borrowers  except  a  small  sum 
for  current  expenses.82  The  offices  of  president  and  di- 
rectors were  abolished  in  the  case  of  all  the  branches  and 

78The  following  report  of  the  examiner,  taken  from  the  Illinois 
Intelligencer  of  June  17,  1825,  is  of  interest  in  showing  upon  what  a  costly 


enterprise  the  state  had  ventured : 

Liabilities : 

Original  note  issue  $  84,685.00 

Discounts  earned  and  loans  repaid   15,547.68 


$100,232.68 

Assets : 

Unpaid  loans 

renewed   $  40,321.07 

bad  debts    31,969.60 

Expenses  of  branches    5,497.90 

Notes  returned  to  principal  bank    19,947.00 

Two  per  cent  interest  to  note  holders   903.61 


$  98,638.18 

Upon  being  questioned  by  the  examiner  as  to  the  failure  of  his  state- 
ment to  balance  the  cashier  explained  that  he  would  be  able  to  show 
auditor's  warrants  and  bank  notes  to  cover  the  deficiency. 

79Ford,  History  of  Illinois,  65;  Reynolds,  My  Own  Times,  173. 

60Laws  of  Illinois,  1824-25,  p.  82,  Section  1. 

81Ibid.,  Section  2. 

S2Ibid.,  Section  3. 


38  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [39G 

only  the  cashier  was  left  to  collect  the  debts  and  renew 
loans.  The  cashier  of  the  principal  bank  was  placed  under 
a  fifty  thousand  dollar  bond  and  the  cashiers  of  the 
branches  under  a  thirty  thousand  dollar  bond  in  order 
to  protect  the  state  from  further  loss  on  account  of  their 
careless  bookkeeping  or  embezzlement  of  funds. S3  There- 
after a  cashier  could  be  removed  by  the  governor  at 
pleasure  and  satisfactory  evidence  had  to  be  given  before 
May  1,  1825,  that  all  five  of  the  cashiers  were  not  de- 
faulters and  that  they  had  faithfully  discharged  the  duties 
of  their  respective  offices.84  To  facilitate  the  destruction 
of  notes,  auditor's  warrants  were  made  legal  tender  at  the 
bank  which  exchanged  them  for  notes  held  by  the  state 
treasurer.85  Five  days  after  the  act  was  signed  the  bank's 
officers  in  the  presence  of  the  governor  and  the  supreme 
court  destroyed  $75,000  worth  of  notes,  one  fourth  of  the 
entire  issue.86 

Governor  Coles  was  keenly  alive  to  the  necessity  of 
improving  the  bank's  condition  and  his  letter  book  bears 
testimony  to  his  vigilance  in  enforcing  the  bank  laws.87  In 
a  letter  to  the  cashier  at  the  Shawneetown  branch  he  states 
that  the  well  being  of  the  bank  demands  a  most  rigid 
enforcement  of  the  letter  of  the  law.  He  warns  the  official 
in  question  that  if  any  further  violation  of  the  law  occurs, 
"a  very  few  days  will  be  permitted  to  pass"  before  he  will 
exercise  the  authority  vested  in  the  governor  by  dismissing 
the  offender  from  office.  In  the  examination  of  the 
Shawneetown  branch  referred  to  above,  the  accountant 
found  that  the  cashier  credited  himself  with  a  generous 
fee  whenever  he  protested  a  note.  Governor  Coles  demanded 
that  reparation  be  made  to  the  principal  bank  and  that 
all  the  bank  notes  that  had  accumulated  during  the  six 
months  period  be  forwarded  promptly  to  the  principal 
bank  for  retirement.88 

83Laws  of  Illinois,  1824-25,  p.  82,  Section  4. 
8*Ibid.,  Section  1. 
85Ibid.,  Section  7. 

^Illinois  Intelligencer,  January  21,  1825. 

87Greene  and  Alvord,  Governors'  Letter  Books,  i,  76-82,  89. 

88Ibid.,  89. 


397] 


BANKING  A  STATE  MONOPOLY 


39 


On  June  twenty-third  after  the  branches  had  sent  in 
their  notes,  a  second  "purification  by  fire"89  of  the  notes  of 
the  bank  occurred  in  which  eleven  thousand  dollars  worth 
was  destroyed.  Within  two  weeks  the  specie  value  of  the 
outstanding  notes  increased  about  five  cents  on  the 
dollar.90  By  December  twentieth  when  the  next  semi-an- 
nual destruction  of  notes  occurred  the  total  amount  out- 
standing had  been  reduced  to  less  than  two  hundred  thous- 
and dollars.91  From  this  time  the  appreciation  of  the 
notes  continued  with  the  progress  of  their  retirement.92 
At  the  close  of  Governor  Coles'  administration  a  year 
later,  they  were  rated  at  seventy-five  cents  on  the  dollar. 

Governor  (Doles  continued  his  unrelenting  vigilance 
over  the  bank  up  to  the  very  close  of  his  administration. 
Just  before  the  opening  of  the  next  general  assembly  in 
December  1826,  he  sent  a  lengthy  questionnaire  to  the 
cashiers  of  the  bank  and  branches  with  a  view  to  obtaining 
data  for  the  use  of  the  legislators,93  but  the  result  was  a 
great  disappointment.  The  cashier  of  the  principal  bank 
answered  the  questions  in  a  very  unsatisfactory  manner. 
The  Shawneetown  cashier  had  recently  died  and  his  admin- 
istrator had  refused  to  turn  over  the  property  of  the 
branch  to  the  new  appointee.  The  other  branches  fur- 
nished sufficient  information  in  addition  to  that  received 
from  the  principal  bank  to  give  a  general  idea  of  the  condi- 
tion of  affairs.  The  four  districts  in  question  had  loaned 
|215,000.  Of  this  amount,  $109,615  had  been  repaid,  while 
the  remainder  might  be  repaid  within  the  allotted  five  years 
or  might  have  to  be  abandoned  as  uncollectible.  The 
expenditures  for  operation  had  consumed  $43,820,  an  ex- 
cess of  $11,000  over  interest  earned.94 

In  his  farewell  message,  Governor  Coles  gave  some 
very  sound  advice  which  the  legislature  would  have  done 

89Niles'  Register,  xxix,  326. 
90Illinois  Intelligencer,  June  24,  1825. 
^Niles*  Register,  xxix,  326,  369. 
92Chicago  American,  December  25,  1840. 
93Greene  and  Alvord,  Governors'  Letter  Books,  i,  107. 
Senate  Journal,  1  Sess.,  1826-27,  p.  22. 


40 


THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [398 


well  to  heed,  but  which,  as  we  shall  see,  was  soon  for- 
gotten. He  urged  them  not  to  increase  the  already  great 
embarrassment  of  the  state's  finances  by  the  enactment 
of  measures  for  the  further  relief  of  the  already  pampered 
debtor.  He  advocated  a  policy  of  non-interference  with 
the  bank,  aside  from  providing  for  a  simple  effective  system 
for  the  settlement  of  its  affairs.  Finally,  he  pointed  out 
the  fact  that  a  speedy  termination  of  the  whole  enterprise 
was  the  only  protection  against  a  total  loss  to  the  state 
from  the  deterioration  of  the  bank's  assets.95 

From  the  very  beginning  the  state  bank  proved  to  be 
a  serious  burden  to  the  state's  finances.  The  state's  annual 
revenue  amounted  to  about  $25,000  and  was  derived  almost 
wholly  from  the  land  held  by  non-residents  in  the  region 
still  known  as  the  military  tract,  lying  north  and  west  of 
the  Illinois  Kiver.  The  residents  of  the  state  paid  their 
taxes  to  the  counties  every  year,  while  the  state  collected 
from  the  non-residents  only  every  other  year.96  As  early 
as  1822  the  state  auditor  had  pointed  out  that  some 
measure  should  be  adopted  for  the  relief  of  public  officers 
who  were  receiving  their  salaries  in  bank  paper  at  par 
and  paying  for  goods  at  a  discount  of  more  than  fifty  per 
cent.  He  contended  that  the  non-resident  taxpayer  met 
but  half  of  his  real  obligation  to  the  state  by  paying  in 
bank  notes  and  furthermore  he  escaped  all  the  attendant 
currency  ills  which  a  resident  was  compelled  to  suffer.97 
Thus  it  can  be  seen  that  the  depreciation  of  state  paper, 
while  it  decreased  the  real  revenue  on  one  hand,  caused 
an  increasing  clamor  for  a  greater  expenditure  on  the 
other.  As  this  was  a  matter  that  concerned  the  members 
of  the  general  assembly  in  a  personal  way,  prompt  action 
was  taken  upon  the  auditor's  suggestion.  Six  weeks  later, 
an  act  had  been  passed  and  approved  appropriating  nine 
dollars  a  day  each  to  the  speakers  of  the  two  houses  in 
place  of  the  usual  per  diem  of  five  dollars.98   Each  senator 

95Senate  Journal,  i  Sess.,  1826-27,  p.  22. 

96Ford,  History  of  Illinois,  47.  This  was  regarded  as  a  great  injustice 
to  the  residents  of  the  state. 

97Laws  of  Illinois,  1822-23,  p.  227. 
9*Ibid.,  164,  Section  2. 


399] 


BANKING  A  STATE  MONOPOLY 


41 


and  representative  was  required  to  write  on  a  slip  of  paper 
the  sum  lie  was  willing  to  accept  provided  it  did  not  exceed 
seven  dollars  per  day.  The  previous  compensation  had 
been  three  dollars  and  a  half.  As  for  other  state  officers, 
the  auditor  was  instructed  to  allow  them  fifty  per  cent 
more  than  the  constitution  specified." 

Since  the  available  fund  of  bank  notes  in  the  treasury 
was  not  sufficient  to  meet  more  than  half  of  the  state's 
current  obligations  the  auditor  was  authorized  to  issue 
his  warrant  bearing  six  per  cent  interest  for  the  rest.100 
The  notes  and  warrants  circulated  side  by  side,  both  de- 
preciating until  in  1825  the  legislature  was  compelled  to 
make  further  provision  for  public  officers.  Accordingly 
the  appropriation  bill  of  1825  provided  that  a  committee 
consisting  of  the  treasurer,  the  secretary  of  state  and  the 
cashier  of  the  principal  bank  should  determine  at  the  be- 
ginning of  each  month  the  rate  at  which  the  treasurer 
should  pay  out  warrants  and  notes  during  the  ensuing 
month.  For  the  time  being  the  auditor  was  instructed 
to  rate  the  notes  of  the  bank  at  three  dollars  for  one  in 
specie.101  In  other  words,  the  state  was  borrowing  money 
at  the  rate  of  two  hundred  per  cent  interest.  The  result  / 
was  that  the  ordinary  expenses  of  about  $30,000  were  in- 
creased threefold  without  any  increase  in  income.102  The 
gap  that  was  made  by  the  destruction  of  bank  notes  was 
soon  more  than  filled  by  warrants.  In  a  way  it  would 
have  been  better  to  have  retained  the  notes,  for  they  cir- 
culated more  freely  and  their  expense  to  the  state  was 
less.  Furthermore,  the  issue  of  $107,000  in  warrants  in 
a  single  year  served  to  keep  down  the  value  of  the  notes. 
The  warrants  as  well  as  the  bank  notes  were  eagerly  seized 
upon  by  non-residents  and  speculators  for  the  purpose  of 
paying  their  state  taxes.103    Notwithstanding  this  handi- 

™Lazvs  of  Illinois,  1822-23,  166,  Section  6. 

100Ibid.,  Section  7. 

101Laws  of  Illinois,  1824-25,  p.  182. 

102Ford,  History  of  Illinois,  48 ;  Edwards,  Life  and  Times  of  Edwards, 

203. 

103Ibid.,  213-15. 


42  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [400 

cap,  however,  the  attendant  increase  in  the  value  of  the 
bank's  paper  following  the  retirement  of  the  $100,000 
indicated  that  the  destruction  of  the  notes  had  engendered 
a  feeling  of  confidence  in  the  state's  integrity.  The  legis- 
lature demonstrated  its  optimism  by  the  passage  of  an  act 
which  provided  that  the  rate  at  which  state  paper  should 
be  paid  out  after  February  17,  1827,  was  to  be  determined 
by  the  same  committee  that  had  been  performing  this 
service,  but  that  they  should  hold  only  quarterly  meetings. 
They  were  instructed  to  continue  this  duty  until  March, 
1830.  At  each  meeting  they  were  to  decrease  the  treasury 
discount  on  the  notes  by  at  least  two  and  one-half  per 
cent.  At  this  rate,  by  March,  1830,  the  notes  would  be  paid 
out  of  the  treasury  on  a  par  with  gold.104 

The  Illinois  courts  had  been  given  to  an  arbitrary 
scaling  down  of  the  debts  of  individuals  against  whom 
the  bank  had  obtained  judgment.  This  practice  was 
ordered  discontinued.  Thereafter,  in  cases  where  judg- 
ment was  rendered,  the  defendant  could  elect  to  pay 
specie  or  bank  notes.  If  he  chose  the  former  his  debt  was 
reduced  to  the  actual  specie  value  of  state  bank  notes; 
otherwise  he  must  pay  the  whole  amount  of  the  face  of  the 
judgment.  The  same  option  was  granted  to  persons  who 
purchased  property  sold  by  the  bank  to  satisfy  a  judg- 
ment.105 

The  resignation  of  Senator  Edwards  to  accept  the 
position  of  minister  to  Mexico  had  left  a  vacancy  for 
the  next  legislature  to  fill,  but  before  it  assembled  Edwards 
had  resigned  his  post  and  engaged  in  the  controversy  de- 
scribed in  connection  with  the  Bank  of  Edwardsville. 
Upon  the  convening  of  the  general  assembly  he  announced 
his  candidacy  for  his  former  seat  in  the  United  States 
senate.  But  his  hostility  to  banks  had  aroused  the  opposi- 
tion of  a  number  of  influential  men  in  addition  to  his  old 
political  enemies  and  he  was  defeated.  Shortly  after- 
wards he  announced  his  candidacy  for  governor  on  an 
anti-bank  platform.     With  a  comparatively  unknown 


104Lazvs  of  Illinois,  1826-27,  p.  82. 
105Revised  Code,  1829,  p.  164. 


401] 


BANKING  A  STATE  MONOPOLY 


43 


opponent  and  a  long  record  of  public  service  Edwards  had 
the  advantage  from  the  start.  He  traversed  the  state  from 
end  to  end,  attacking  the  bank  and  everyone  connected 
with  it.  He  accused  its  officers  of  mismanaging  its  affairs 
and  of  employing  methods  of  business  that  were  a  menace 
to  the  public  welfare.  The  record  of  the  legislature  in  the 
field  of  bank  legislation  was  subjected  to  a  storm  of  criti- 
cism and  baleful  consequences  of  the  whole  undertaking 
were  pictured  to  his  audiences  of  backwoodsmen.  Edwards 
was  elected  by  a  plurality  of  five  hundred  votes,  but  the 
legislature  continued  to  be  dominated  by  his  enemies.106 

In  his  inaugural  address107  to  the  legislature  Governor 
Edwards  gave  a  lengthy  review  of  the  history  of  the  state 
bank  and  the  effect  of  its  paper  upon  the  community.  But 
he  considered  the  note  issue  itself  of  minor  importance  as 
a  cause  of  the  deplorable  conditions  that  prevailed.  It 
was  his  belief  that  the  constant  interference  by  the  legis- 
lature between  debtor  and  creditor,  as  well  as  the  lavish 
increases  in  salary  voted  in  the  face  of  an  empty  treasury 
were  responsible  for  most  of  the  difficulty.  He  admitted, 
however,  that  the  existing  state  of  affairs  was  not  entirely 
due  to  unwise  legislation,  and  recognized  the  natural 
scarcity  of  sound  currency  in  pioneer  communities  and 
the  heavy  purchase  of  public  land  as  contributory  causes. 
On  the  whole,  the  address  gives  an  adequate  and  fairly 
accurate  picture  of  the  conditions  that  confronted  the 
new  administration.  But  Edwards  was  not  content  to 
stop  at  this  point.  He  proceeded  to  berate  the  officers 
of  the  bank  for  "gross  fraud  and  imposition,  aggravated 
by  the  clearest  moral  perjury."  He  considered  past  in- 
vestigations as  generous  applications  of  white  wash  and 
urged  the  legislature  to  exercise  its  right  of  impeachment 
and  trial  of  the  delinquent  officers. 

The  more  or  less  general  charges  contained  in  the 
governor's  message  were  followed  by  specific  indictments 
contained  in  several  special  messages.    The  purport  of 

i°6Ford,  History  of  Illinois,  64;  Edwards,  Life  and  Times  of  Edwards, 
209-12. 

107Senate  Journal,  1826-27,  pp.  46  ff. 


44  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [402 


these  messages  was  that  the  late  president,  directors  and 
cashier  of  the  branch  bank  at  Edwardsville  had  been 
guilty  of  a  violation  of  the  state  bank  act  of  1821.  William 
Kinney,  a  prominent  political  opponent  of  Edwards,  was 
accused  of  mismanaging  the  affairs  of  this  branch  while 
on  the  board  of  directors.  The  principal  charge  against 
him  was  that  he  was  involved  in  the  loan  of  $2000  made 
upon  a  piece  of  real  estate  which  upon  execution  was 
J  valued  at  $737  and  disposed  of  for  $500.  It  will  be  remem- 
bered that  the  law  of  1821  provided  that  no  loan  on  real 
estate  should  be  made  unless  the  property  was  worth 
double  the  amount  of  the  loan.  The  loan,  according  to 
Edwards,  was  made  for  the  purpose  of  buying  a  printing 
press  with  which  to  conduct  the  fight  for  the  adoption  of  a 
pro-slavery  amendment  to  the  state  constitution.108 

Other  charges  were  brought  by  Edwards  against 
Judge  Smith,  the  cashier  of  the  branch.  Smith  was  ac- 
cused by  the  governor  of  having  violated  every  provision 
of  the  bank's  charter  dealing  with  the  lending  of  the  notes, 
and  of  showing  the  grossest  partiality  and  carelessness 
in  handling  the  payment  of  loans.  Judge  Smith  was  a 
politician  of  considerable  ability  and  succeeded  in  uniting 
the  opponents  of  Edwards  so  effectively  that  the  committee 
appointed  to  investigate  the  charges  were  favorable  to 
the  accused  officials  from  the  start.  The  evidence  shows 
that  the  branch  had  been  run  in  a  very  reckless  manner, 
,  to  say  the  least.  Its  officers  had  so  many  political  alliances 
that  they  were  forced  to  show  partiality  in  their  handling 
of  the  bank's  business.  After  the  committee  had  made  a 
lengthy  examination  of  witnesses  and  papers  and  reported 
favorably  to  the  accused,  the  House  resolved  that  no 
evidence  had  been  presented  against  the  accused  officials 
which  would  "justify  the  belief  that  they  acted  corruptly 
and  with  bad  faith  in  the  management  of  said  bank."109 

During  the  same  session  the  governor  attacked  the 
cashier  of  the  principal  bank  in  a  message  which  contained 
nine  specific  instances  of  violation  of  the  state  law.  In 

108House  Journal,  1826-27,  pp.  409-11,  418,  459-61,  504  ff. 
109Ibid.,  p.  595- 


403] 


BANKING  A  STATE  MONOPOLY 


45 


this  message,  lie  made  the  further  charge  against  Judge 
Smith  that  he  still  had  in  his  possession  unlawfully  a 
large  part  of  the  bank's  cash.  These  charges  were  like- 
wise referred  to  a  committee  which  took  action  similar  to 
that  in  the  Edwardsville  case.110  In  the  meantime,  a  joint 
committee  appointed  to  examine  the  state  bank,  count 
its  money  and  find  out  if  the  "retirement  clause''  was  be- 
ing fulfilled  reported  that  the  affairs  of  the  bank  were 
being  "properly  and  correctly  managed."111 

Edwards  afterwards  retracted  some  of  the  statements 
he  had  made  about  prominent  bank  officials,  but  continued 
his  hostility  to  banks  during  the  rest  of  his  term.1 12 

His  letter  book  during  this  period  is  largely  filled  with 
demands  for  information  as  to  illegal  acts  done  accompa- 
nied by  threats  of  removal  from  oflice.  These  letters  were 
regarded  as  the  attacks  of  a  personal  enemy  rather  than 
the  official  acts  of  a  chief  executive.1 13  Edwards  was 
especially  anxious  to  obtain  any  information  that  could 
be  used  against  his  enemies  in  the  legislature  and  in  one 
letter  requests  the  auditor  to  prepare  for  him  a  list  of  the 
members  of  the  general  assembly  who  have  failed  to  meet 
their  debts  to  the  bank  together  with  the  respective 
amounts.1 14 

Notwithstanding  the  hostility  of  the  legislature  to  the 
Edwards  policies  and  the  relationship  that  existed  between 
its  members  and  the  bank,  some  progress  was  made  toward 
protecting  the  state's  interests  in  the  settlement  of  the 
bank's  affairs.  The  salaries  of  the  cashiers  of  the  principal 
bank  and  branches  were  reduced  to  five  hundred  and  four 
-hundred  state  paper  dollars  respectively.  Thereafter  the 
questionable  practice  on  the  part  of  bank  officers  of  ap- 
propriating large  sums  for  current  expenses  was  forbidden. 
For  all  such  expenditures  a  specific  appropriation  from  the 
legislature  was  now  required.115    The  president  of  the 

110House  Journal,  1826-27,  415,  416. 
111  Senate  Journal,  1826-7,  242-3. 
112Knox,  History  of  Banking,  718. 

113Greene  and  Alvord,  Governors'  Letter  Books,  i,  116-24,  133. 
^Ibid.,  120. 

ll7>Laws  of  Illinois,  1826-27,  p.  377,  Sections  I,  2. 


46  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [404 


state  bank  was  no  longer  to  receive  compensation  for 
bis  services.116  Tbe  casbier  was  ordered  to  place  all  out- 
standing promissory  notes  of  less  tban  one  hundred  dollars 
in  tbe  hands  of  a  justice  of  tbe  peace.117  The  small  amount 
of  individual  deposits  was  to  be  returned  to  the  depositors 
and  thereafter  none  but  state  and  school  funds  were  to  be 
received.  In  order  to  protect  the  state's  interest  the 
cashier  of  the  principal  bank  was  empowered  to  bid  in 
property  sold  by  the  bank  for  judgment  if  the  other  bids 
were  too  low.118 

On  the  other  hand  the  appreciation  of  the  state  paper 
to  sixty  or  seventy  cents  led  to  a  demand  for  further  relief 
to  bank  debtors.  In  spite  of  the  fact  that  unreasonable 
leniency  had  already  been  shown  to  this  class  and  that  any 
further  indulgence  would  delay  the  linal  settlement  of  the 
bank's  business  and  thus  place  a  greater  burden  upon  the 
already  embarrassed  state  treasury,  a  law  for  the  relief 
of  debtors  was  passed.  It  provided  that  any  debtor  to  the 
J  bank  who  was  in  default  of  payment,  even  if  judgment 
had  already  been  rendered,  should  be  forgiven  for  his 
past  delinquency  and  allowed  to  renew  his  note  or  mort- 
gage. However,  he  must  agree  to  pay  the  back  instalments 
and  interest  and  any  court  costs  that  may  have  been  in- 
curred.119 All  courts  were  forbidden  to  issue  executions 
against  bank  debtors  for  three  months  after  the  passage 
of  the  act.120  In  case  the  proceedings  against  a  bank 
debtor  had  gone  so  far  that  the  sheriff  was  about  to  seize 
the  property  of  the  debtor  upon  an  execution,  the  debtor 
could  by  arranging  with  the  bank  for  the  renewal  of  the 
obligation,  compel  the  sheriff  to  return  the  writ,  marked : 
"Satisfied  by  the  renewal  of  the  debt  to  the  bank  by  the 
defendant."121  It  was  natural  that  such  a  trifling  policy 
on  the  part  of  the  state  should  lead  to  an  attitude  of  con- 

ll6Laws  of  Illinois,  1826-27,  p.  377,  Section  3. 
117Ibid.,  Section  4. 
118Ibid.,  Section  5. 
il9Ibid.,  Section  1. 

12QLazvs  of  Illinois,  1826-27,  p.  376,  Section  2. 
*21Ibid.,  Section  3. 


405] 


BANKING  A  STATE  MONOPOLY 


47 


tempt  on  the  part  of  the  debtor.  Accordingly,  in  spite  of 
a  most  earnest  protest  on  the  part  of  Governor  Edwards,122 
additional  inducements  were  demanded  and  granted  on 
the  ground  that  former  measures  had  not  been  effective. 
,This  time  provision  was  made  for  the  remission  of  all 
interest  if  a  debtor  would  sign,  by  September  1,  1829, 
three  new  notes  by  which  he  agreed  to  pay  his  obligation 
to  the  bank  in  three  annual  instalments,  on  the  first  of 
May,  1830,  1831,  and  1832,  respectively.  If  instead  of 
signing  the  notes  he  chose  to  settle  in  full  by  September  1, 
1829,  he  was  to  receive  a  discount  of  ten  per  cent  and  was 
absolved  from  all  interest.  If  he  paid  by  July  1,  1830, 
his  interest  was  deducted  but  no  further  rebate  was 
given.123  The  act  also  provided  that  as  a  step  toward  the 
final  settlement  of  the  bank's  business  the  office  of  cashier 
of  the  principal  bank  be  abolished  and  the  state  treasurer 
made  ex  officio  cashier.  The  work  of  collection  was  turned 
over  to  the  attorney  general  and  the  various  states  at- 
torneys who  received  two  and  a  half  per  cent  on  all  col- 
lections made.124 

When  the  first  of  September  arrived  and  it  was  seen 
that  the  bank  debtors  were  not  taking  advantage  of  the  in- 
dulgence granted  them,  Governor  Edwards  issued  a  procla- 
mation announcing  his  intention  to  show  no  further  mercy 
in  his  prosecution  of  the  state's  claims.125 

The  same  year  (1829)  Governor  Edwards  became  in- 
volved in  another  controversy  with  the  treasury  depart- 
ment at  Washington.  The  state  was  entitled  to  draw  as  a 
school  fund  from  the  federal  treasury  three  per  cent  of 
the  proceeds  from  the  sale  of  public  land  in  Illinois.  The 
secretary  of  the  treasury  became  convinced  that  this  money 
was  not  being  put  to  its  intended  use  and  ordered  the  an- 
nual payment  for  1829  to  be  withheld.  Governor  Edwards 
was  a  strong  believer  in  state's  rights  and  resented  any 
interference  on  the  part  of  a  federal  officer.  Consequently 

122Governor's  message,  1828. 

12*Laws  of  Illinois,  1828-29,  pp.*  167-69. 

12*Ibid. 

125Greene  and  Alvord,  Governors'  Letter  Books,  i,  148,  149. 


48 


THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [406 


be  demanded  the  immediate  payment  of  the  money;  hut 
it  was  withheld  until  the  secretary's  protest  was  heeded. 
The  whole  difficulty  arose  over  the  validity  of  the  practice 
of  the  school  fund  commissioners  in  investing  the  funds 
in  state  bank  notes.  These  notes  were  then  exchanged  at 
the  auditor's  office  for  certificates  of  indebtedness  and  the 
state  thereby  came  into  possession  of  more  currency  with 
which  to  meet  its  heavy  obligations.  Edwards  justified 
this  diversion  of  the  school  money  from  its  proper  chan- 
nels with  the  assertion  that  as  soon  as  the  state  could  ar- 
range its  disordered  finances  it  would  deal  liberally  with 
its  common  schools.126 

The  year  1830  witnessed  another  struggle  for  the 
governorship,  with  the  bank  as  the  leading  issue.  Lieuten- 
ant-Governor Kinney,  who  it  will  be  remembered  had  been 
under  suspicion  during  the  investigation  of  the  Edwards- 
ville  branch,  was  a  candidate  against  John  Reynolds, 
formerly  a  judge  of  the  supreme  court  of  Illinois.  It  was 
but  natural  that  the  whole  Edwardsville  scandal  should 
be  unearthed  and  freely  aired  during  the  campaign.  Kin- 
ney took  the  position  that  he  should  be  rewarded  for  the 
years  of  labor  and  sacrifice  spent  in  trying  "to  bolster 
up  the  state  bank."  He  stated  that  over  twenty  thousand 
dollars  in  specie  was  due  him  at  the  time  the  bank  opened. 
He  accepted  bank  notes  at  par  as  a  matter  of  patriotic 
duty  to  the  state  and  subsequently  paid  most  of  them  out 
at  thirty  to.  thirty-five  cents  on  the  dollar.  He  cited  the 
favorable  showing  of  the  Edwardsville  branch  as  well  as 
his  exoneration  by  the  legislature  as  the  best  evidence  of 
his  ability  and  honesty  in  an  office  of  trust.127 

The  opponents  of  the  bank  had  an  able  candidate  in 
Judge  Eeynolds.  In  his  speeches  during  the  campaign 
he  insisted  that  he  had  always  opposed  the  bank,  that  he 
voted  against  its  establishment,  and  that  the  people  would 
have  to  bear  a  heavy  burden  of  taxation  on  account  of  the 
sins  of  bank  officials,  like  his  opponent.    The  friends  of 

126Edwards,  Life  and  Times  of  Edwards,  548,  549;  Illinois  Intelli- 
gencer, February  5,  183 1. 

127 Illinois  Intelligencer,  April  io,  1830. 


407] 


BANKING  A  STATE  MONOPOLY 


49 


the  bank,  on  the  other  hand,  pointed  out  that  Judge  Rey- 
nolds was  a  borrower  from  the  bank  and  as  a  member  of 
the  legislature  could  always  be  counted  upon  to  support 
the  various  relief  measures  with  which  his  party  appealed 
to  the  bank  debtors  for  support  at  the  polls.  In  spite  of 
these  accusations,  however,  Judge  Reynolds  was  elected. 

Upon  the  legislature  which  met  in  December,  1830, 
there  devolved  the  difficult  task  of  providing  for  the 
liquidation  of  the  state  bank,  whose  charter  was  to  expire 
during  the  next  year.  The  legislature  of  1821  had  pledged 
all  of  the  state's  resources  present  and  future  to  the  re- 
demption of  the  bank's  notes,  with  the  expectation  that 
the  profits  of  the  business  would  be  more  than  ample  to 
provide  for  a  final  settlement  of  all  liabilities.  But  the 
nearer  the  day  of  reckoning  approached,  the  less  able  was 
the  state  to  meet  its  obligations.  The  bank's  resources 
had  been  allowed  to  dwindle  away ;  while  the  condition  of 
the  state's  finances  was  daily  becoming  more  precarious. 

In  his  report  of  January  1,  1831,  the  state  treasurer 
stated  that  the  amount  still  due  the  bank  was  $98,639.52. 
Of  the  three  hundred  thousand  dollars  issued  in  1821,  $147,- 
742  had  been  redeemed  (mostly  by  a  balancing  of  debits 
against  credits)  and  destroyed.  There  remained,  there- 
fore, $152,258  which  the  state  must  be  prepared  to  redeem 
before  July  1.  To  meet  this  obligation  there  was  to  the 
bank's  credit  $14,899.96  in  cash,  while  the  state  had  to  its 
credit  about  $20,000  more.  The  buildings  of  the  bank 
and  branches  were  estimated  to  be  worth  $5,800.42.  The 
accrual  of  the  state's  ordinary  revenue  and  the  collection 
of  some  of  the  bank's  debts  would  help  swell  the  total 
available  resources.128  At  the  same  time,  however,  a  large 
amount  of  auditor's  warrants  was  outstanding  and  the 
ordinary  expenses  of  the  state  government  had  to  be  met. 

In  his  inaugural  message129  Governor  Reynolds  advo- 
cated the  winding  up  of  the  bank's  business  as  rapidly  as 
consideration  for  the  welfare  of  the  state  and  the  debtors 
would  permit.    He  urged  the  legislature  to  uphold  the 

12SSenate  Journal,  1830-31,  pp.  181-83. 
129House  Journal,  1830-31,  p.  63. 


50 


THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [408 


credit  and  character  of  the  state  by  providing  for  the 
prompt  payment  of  its  obligations.  It  required  courage 
and  a  high  sense  of  public  duty  to  disregard  the  wide- 
spread sentiment  in  favor  of  repudiation.1 30  Nevertheless 
a  bill  was  passed  by  both  houses  authorizing  the  governor 
to  borrow  a  hundred  thousand  dollars  at  six  per  cent  for 
the  purpose  of  aiding  in  the  redemption  of  bank  paper 
and  auditor's  warrants,  and  replacing  the  money  wrong- 
fully taken  from  the  school  funds.  The  loan  was  to  be 
payable  after  1850  in  specie  or  notes  of  the  United  States 
Bank.131  Governor  Reynolds  promptly  entered  into  a 
I  contract  with  Samuel  Wiggins  of  Cincinnati  for  the  loan 
of  the  entire  amount  but  the  state  treasurer  was  not  per- 
mitted to  draw  upon  Mr.  Wiggins  for  more  than  thirty 
thousand  dollars  before  October  1.  Governor  Reynolds 
very  wisely  based  his  calls  for  the  various  payments  upon 
accurate  data  as  to  the  immediate  needs  of  the  treasury 
and  in  this  way  reduced  the  interest  payments  to  the 
smallest  possible  amount.132  The  following  account  taken 
from  Governor  Ford's  History  of  Illinois  gives  a  vivid 
picture  of  the  effect  of  the  loan  upon  the  people : 

"The  money  was  obtained,  and  the  notes  of  the 
bank  redeemed,  the  honor  of  the  state  was  saved  but  the 
legislature  was  damned  for  all  time  to  come.  The  mem- 
bers who  voted  for  the  law  were  struck  with  consternation 
and  fear  at  the  first  sign  of  public  indignation.  Instead 
of  boldly  defending  their  act  and  denouncing  the  unprinci- 
pled demagogues  who  were  inflaming  the  minds  of  the 
people  these  members  when  they  returned  to  their  con- 
stituents went  meanly  sneaking  about  like  guilty  things 
making  the  most  humble  excuses  and  apologies.  A  bolder 
course  of  enlightening  the  public  mind  might  have  pre- 
served the  standing  of  the  legislature  and  wrought  a  whole- 
some revolution  in  public  opinion  then  much  needed.  But 
as  it  was  the  destruction  of  great  men  was  noticeable  for  a 
number  of  years.   The  Wiggins  loan  was  long  a  bye  word 


130Ford,  History  of  Illinois,  106. 
131  Laws  of  Illinois,  130-31. 

132Greene  and  Alvord,  Governors'  Letter  Books,  i,  162. 


409] 


BANKING  A  STATE  MONOPOLY 


51 


in  the  mouths  of  the  people.  Many  affected  to  believe 
that  Wiggins  had  purchased  the  whole  state,  that  the 
inhabitants  for  generations  to  come  had  been  made  over 
to  him  like  cattle;  and  but  few  found  favor  in  their  sight 
who  had  anything  to  do  with  the  loan."133 

Several  other  laws  relating  to  the  bank  were  passed 
at  the  same  session.  One  of  them  created  a  commission 
for  the  purpose  of  counting  and  destroying  bank  notes.  It 
was  to  meet  every  three  months  to  burn  all  the  notes  re- 
deemed during  that  time,  until  all  the  original  issue  had 
been  destroyed.  The  membership  of  the  commission  con- 
sisted of  the  governor,  the  secretary  of  state  and  the  state 
treasurer.134 

An  act  for  the  further  relief  of  bank  debtors  provided 
that  all  who  had  not  availed  themselves  of  the  relief  act 
of  1829  should  be  permitted  to  substitute  for  their  regular 
interest  bearing  obligation  a  non-interest,  bearing  note 
payable  on  or  before  May  1,  1832.  If  this  note  was  paid 
before  December  1,  1831,  a  six  per  cent  rebate  was  to  be 
deducted  from  the  principal.  In  order  to  dispense  with 
the  regular  machinery  of  the  bank  as  soon  as  possible,  it 
was  provided  that  after  July,  1832,  the  work  of  collecting 
notes  and  mortgages  due  the  branches  should  be  assigned 
to  the  attorney  general  and  the  states  attorneys.  All 
bank  property  was  to  be  turned  over  to  the  state  treasurer 
as  had  been  done  in  the  case  of  the  principal  bank.  Each 
branch  cashier  was  allowed  two  hundred  and  fifty  dollars 
for  his  services  in  closing  up  his  work,  his  office  to  expire 
on  the  first  Monday  in  December  1832.  After  that  date  all 
bank  property  was  to  be  sold  by  the  attorney  general  and 
the  states  attorneys.135 

Even  with  the  instalments  of  the  Wiggins  loan  be- 
coming available  at  frequent  intervals  there  was  danger 
of  a  shortage  of  specie  for  the  redemption  of  notes.  Ac- 
cordingly it  was  provided  that  whenever  a  note  was  pre- 
sented at  the  treasury  and  the  money  for  its  redemption 


133Ford,  History  of  Illinois,  107. 
134Laws  of  Illinois,  1830-31,  p.  190. 
133 Ibid.,  p.  182. 


52 


THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [410 


was  not  available,  a  state  bond  bearing  six  per  cent  in- 
terest should  be  issued,  redeemable  at  tlie  state's  pleasure, 
provided  the  holder  received  two  months'  notice.  These 
bonds  were  receivable  for  all  dues  to  the  state.  The  treas- 
urer was  instructed  to  devote  all  specie  not  needed  for  cur- 
rent expenses  to  the  redemption  of  bank  notes.136 

In  the  meantime  the  president  and  directors  of  the 
principal  bank  as  well  as  the  various  state  officers  were 
experiencing  considerable  difficulty  in  inducing  James 
M.  Duncan,  the  late  cashier  of  the  bank,  to  surrender  the 
property  of  the  bank  to  the  state  treasurer.  The  act  of 
January,  1829,  required  that  he  make  the  transfer  by  March 
1  of  that  year,  but  he  left  Vandalia  on  account  of  ill  health 
and  failed  to  comply  with  the  law.  On  November  29 
of  that  year  the  board  of  directors,  having  learned  of  his 
delinquency,  demanded  that  he  surrender  the  bank's  prop- 
erty at  once.  He  promised  to  do  so  immediately  but  did 
not  keep  his  word.  In  April,  1830,  the  circuit  attorney  at 
the  request  of  the  board  entered  suit  against  Duncan  and 
his  bondsmen  for  one  hundred  thousand  dollars  dam- 
ages.137 In  an  interview  with  the  editor  of  the  Illinois 
Intelligencer,  Duncan  stated  that  he  considered  the  law 
abolishing  his  office  as  defective  in  not  providing  for  a 
thorough  checking  up  of  the  transfer  and  therefore  was 
not  willing  to  assume  the  responsibility.138  The  members 
of  the  legislature  determined  upon  getting  possession  of 
the  money  and  accounts  of  the  bank  without  waiting  for 
the  slow  process  of  court  procedure,  sent  a  joint  com- 
mittee to  Duncan's  house  and  instructed  them  to  bring 
the  property  in  question  back  with  them.  Duncan  was 
not  at  home  and  his  wife  declined  to  give  it  up  on  the 
grounds  that  suits  were  in  progress  against  her  husband 
and  he  needed  the  vouchers  in  the  preparation  of  his 
case.139  Two  weeks  later  Duncan  notified  a  committee 
of  the  senate  that  he  would  leave  the  books  of  the  bank 

136 Laws  of  Illinois,  1830-31,  181. 
137 Senate  Journal,  1830-31,  pp.  172  ff. 
138 Illinois  Intelligencer,  July  17,  1830. 
139Senate  Journal,  1830-31,  p.  189. 


411] 


BANKING  A  STATE  MONOPOLY 


53 


where  they  could  get  them  but  would  not  deliver  them  in 
person.140  Later  at  a  meeting  held  by  the  committee 
Duncan  was  present  and  a  compromise  was  reached  by 
which  the  legislature  was  to  pass  a  law  providing  for 
three  referees  to  examine  the  books  and  agree  upon  a  set- 
tlement. Accordingly  the  act  of  February  1  was  passed 
providing  for  this  method  of  settling  the  controversy.  It 
was  specified  that  the  final  settlement  must  be  ratified  by 
the  general  assembly  and  that  Duncan  was  to  be  allowed 
no  salary  for  services  since  March  1,  1829.  However, 
Duncan  was  compelled  to  agree  in  writing  that  he  would 
abide  by  the  decision  of  the  referees  and  transfer  all  the 
bank's  property  to  the  state  treasurer.141  Before  a  settle- 
ment was  reached  the  legislature  by  a  joint  resolution  de- 
manded that  Duncan  turn  over  the  money  of  the  bank  at 
once,  but  he  refused  on  the  ground  that  referees  had  been 
provided  to  settle  his  accounts  and  that  he  would  await 
their  decision.142  When  the  legislature  met  in  December, 
1832,  the  treasurer  reported  that  the  books  of  the  princi- 
pal bank  were  still  in  the  hands  of  the  three  auditors.  The 
cashiers  of  the  branches  had  been  allowed  from  July  4  to 
the  first  Monday  in  December  to  post  their  books  and  hand 
them  over  to  the  treasurer,  but  only  two  had  done  so.143 
Such  incidents  as  these,  while  unimportant  in  themselves, 
are  valuable  for  the  light  they  throw  upon  the  petty  and 
trifling  methods  that  characterized  the  management  of  the 
state  bank. 

With  the  help  of  the  Wiggins  loan  the  work  of  re- 
deeming the  outstanding  notes  was  carried  on  so  ex- 
peditiously that  by  January  5,  1832,  f 289,000  of  the  issue 
of  three  hundred  thousand  had  been  redeemed  and 
destroyed.144  Three  years  later  the  treasurer  reported  that 
$6554.50  worth  of  the  notes  had  not  yet  been  presented. 
Considering  the  comparatively  large  per  cent  of  notes 

140Senate  Journal,  1830-31,  p.  273. 
141  Laws  of  Illinois,  1830-31,  pp.  178-179. 
142Senate  Journal,  1830-31,  p.  359. 
143Ibid.,  1832-33,  pp.  72,  73. 
14*Ibid.,  1832-33,  p.  240. 


54 


THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [412 


that  were  liable  to  be  destroyed  or  mislaid,  this  is  not  a 
surprising  proportion  of  the  whole  issue.145 

The  legislature,  either  for  political  reasons  or  on  ac- 
count of  the  bank's  debt,  passed  another  relief  law  for 
debtors  to  the  bank.  It  was  provided  that  in  case  any 
debtor  settled  his  account  with  the  bank  before  January 
1,  1834,  all  of  the  interest  and  ten  per  cent  of  the  principal 
should  be  deducted  provided  the  total  rebate  did  not  exceed 
twenty-five  per  cent.  The  law  further  provided  that  if  in 
the  judgment  of  the  court  the  settlement  of  a  decedent's 
obligations  with  the  bank  would  distress  a  widow  and 
orphans  the  court  could  declare  the  debt  cancelled.146  As 
a  climax  to  the  long  series  of  acts  granting  relief  to  debtors 
the  supreme  court,  the  following  December  (1833),  in 
the  case  of  Linn  vs.  State  Bank  to  which  reference  has 
already  been  made,  decided  that  the  act  authorizing  the 
bank  was  unconstitutional. 

The  effect  of  this  release  of  debtors  from  all  obligation 
to  the  bank  was  to  increase  the  already  great  burden  of  the 
state  by  the  amount  that  ultimately  would  have  been  col- 
lected from  these  persons.147  Notwithstanding  the  effect 
of  the  above  decision,  the  legislature  (1834-35)  passed  the 
benefit  act  of  February  14,  1835  in  the  evident  hope  of 
half  coercing,  half  coaxing  the  debtors  to  settle  and  ease 
their  consciences.  The  act  provided  that  all  persons  still 
indebted  to  the  bank  should  be  allowed  to  pay  their  debts 
in  three  annual  instalments,  and  that  all  past  interest  and 
twenty-five  per  cent  of  the  original  principal  should  be 
remitted  at  the  time  of  granting  the  new  accommodation. 
However,  if  a  person  took  advantage  of  this  offer,  all  right 
to  the  use  of  a  plea  of  unconstitutionality  was  to  be  for- 
feited.148 

In  the  preparation  of  his  annual  report149  for  1834 
the  treasurer  of  the  state  made  a  thorough  examination  of 
the  books  and  papers  of  the  bank  and  branches  with  a 

^5Ibid.,  1834-35,  P.  295. 
14QLaws  of  Illinois,  1832-33,  p.  584. 
147 Alton  Spectator,  December  21,  1833. 
li8Laws  of  Illinois,  1834-35,  P-  67. 

149The  report  of  the  treasurer  upon  which  the  contents  of  this  para- 
graph are  based  is  found  in  Senate  Journal,  1834-35,  P'  295. 


413] 


BANKING  A  STATE  MONOPOLY 


55 


view  to  furnishing  the  legislature  with  a  complete  resume 
of  their  affairs;  but  in  every  case  careless  bookkeeping 
prevented  his  obtaining  reliable  data.  The  branch  of 
Shawneetown  had  been  operated  during  the  entire  six 
year  term  of  its  first  cashier  without  any  account  being 
kept  against  debtors,  or  any  other  reliable  record  of  its 
operations  made.  The  second  cashier  had  tried  to  supply 
this  deficiency  but  found  the  task  a  hopeless  one.  The 
cashier  at  Brownsville  had  but  recently  been  appointed  to 
the  position  and  was  unable  to  be  of  assistance  to  the 
treasurer.  The  officers  of  the  principal  bank  upon  re- 
linquishing their  duties  in  December,  1832,  had  rendered  an 
account  to  the  state  but  the  treasurer  found  it  to  be  in- 
complete and  unreliable.  However  an  analysis  of  its 
various  items  is  of  some  value  in  so  far  as  it  reveals  the 
character  of  the  whole  undertaking  and  its  great  cost  to 
the  state.    The  statement  rendered  by  the  bank  is  as 


follows  : 

Debit 

To  capital   $299,910.38 

To  balance    18,550.39 

To  amount  of  discounts  received   59,059.21 


$377,520.48 

Credit 

Amount  of  notes  received  from  principal  bank  $183,424.99 

Expenses  of  bank  and  branches    57,302.26 

Notes,  etc.,  due  the  bank   79,510.34 

Allowed  for  two  per  cent  interest   5,403.23 

Discounts  under  act  of  1829    1,380.04 

Allowed  for  prompt  payment   2,140.00 

Due  by  late  cashier    27,439.21 

Real  estate  unsold  and  suspended  interest   5,129.26 

Loss  on  sale  of  real  estate   4,689.50 

Appropriations  paid  at  Shawneetown   832.50 

Profit  and  loss,  Brownsville    3,764.96 

Banking  house  (cost)    6,305.62 

Cash  received  previous  to  December  3,  1832   138.57 


$377,520.48 

The  first  item  charged  to  the  .bank,  "capital,"  repre- 
sents the  total  issue  of  notes.   These  had  been  turned  over 


56  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [414 

by  the  state  to  the  bank  and  branches  and  they  had  loaned 
them  out  at  six  per  cent  interest  which  amounted  to 
|59,059.21,  the  third  item  in  the  liability  column.  The  re- 
maining item,  "balance,"  seems  to  have  been  merely  a  book- 
keeping device  to  make  the  two  columns  balance.  On 
the  asset  side  of  the  statement  the  bank  is  credited  with 
having  returned  to  the  state  $183,424.99  of  the  total  note 
issue  but  the  books  of  the  state  treasurer  showed  that  only 
$ 162,326.63  had  been  repaid  by  the  bank.  At  the  time  the 
enterprise  was  projected  it  was  expected  that  its  earnings 
would  exceed  the  total  cost  to  the  state  and  so  far  as 
the  current  expense  account  of  the  bank  is  concerned,  the 
statement  shows  it  to  have  been  almost  $2,000  less  than 
the  total  earnings;  but  Mr.  Dement,  the  state  treasurer, 
pointed  out  that  a  large  part  of  the  discounts  earned  was 
uncollectible  and  that  the  $5,403.23  allowed  in  interest  to 
note  holders,  $1,380.04  and  $2,140.00  granted  as  rebates 
for  prompt  payment  of  loans,  should  be  added  to  the  cur* 
rent  expense  account.  The  bank  had  already  lost  $3,764.96 
from  bad  debts  and  bad  management  at  Brownsville  and 
$4,689.50  on  real  estate  bid  in  at  judgment  sales  under 
its  own  mortgages  and  later  sold  at  a  sacrifice.  The  bank- 
ing house  at  Vandalia  is  listed  at  its  original  cost  but  Mr. 
Dement  estimated  that  this  item  as  well  as  "real  estate  un- 
sold'' and  "notes,  etc.,  due"  would  suffer  a  great  shrinkage. 
In  January,  1835,  in  fact,  the  book  assets  of  the  bank  were 
listed  at  $109,127  but  on  account  of  the  death  or  insolvency 
of  a  number  of  debtors  as  well  as  the  decision  that  the  bank 
act  was  unconstitutional  the  treasurer  estimated  that  their 
real  value  was  between  seven  and  eight  thousand  dollars. 
An  examination  of  the  treasurer's  reports  for  a  number 
of  years  after  this  date  shows  that  the  estimate  was  not 
far  wrong.150  At  the  time  the  above  statement  was  made 
( December,  1832 ) ,  $27,439.21  in  money  and  other  valuables 
was  still  in  the  hands  of  the  late  cashier,  Mr.  Duncan, 

150Received  from  bank's  assets  November  30,  1834,  to  November  30, 
1835,  $2,502.18;  from  November  30,  1835,  to  November  30,  1836,  $1,053.94; 
from  July  1,  1837,  to  November  30,  1838,  $169.00;  from  November  30,  1838, 
to  November  30,  1839,  $385-54- 


415] 


BANKING  A  STATE  MONOPOLY 


57 


pending  an  examination  of  his  accounts,  but  as  has  been 
noted  in  another  connection  this  amount  was  soon  paid 
into  the  state  treasury. 

From  data  obtained  from  numbers  of  the  Illinois 
Advocate,  Vandalia,  and  from  the  report  of  the  treasurer, 
the  writer  has  compiled  a  table  showing  the  general  condi- 
tion of  each  of  the  four  branches  at  the  expiration  of  the 
bank's  charter:151 

There  is  no  accurate  record  of  the  total  loss  entailed 
by  the  state  from  the  operations  of  the  bank.  Such  a 
record  would  include  the  loss  of  revenue  from  depreciated 
currency,  increased  appropriations  necessary  in  order  to 
meet  the  state's  obligations  with  paper  money,  the  loss 
from  loans  which  were  never  repaid  and  the  interest  on 
indebtedness  incurred  because  of  the  lack  of  dependable 
funds  in  the  treasury.  The  last  named  item  would  in- 
clude the  interest  paid  on  auditor's  warrants,  fund  bonds, 
and  on  the  Wiggins  loan. 

Ford  estimates  that  the  state  lost  more  than  f 150,000 
by  accepting  bank  notes  at  the  treasury  and  that  its 
expenditures  were  increased  }150,000  more  by  meeting  its 
obligations  with  this  paper.  He  also  estimates  the  amount 
of  loans  never  repaid  at  f 100,000. 15 2  The  Alton  Spectator 
in  1834  estimated  that  because  of  the  bank  the  state  debt 
up  to  that  time  had  been  increased  by  |460,000.153  As 


151Illinois  Advocate,  October  14,  28,  November  11,  1831,  January  20, 
1832;  Treasurer's  Report  in  Senate  Journal,  1834-35,  P-  295.  The  starred 
items  are  taken  from  the  treasurer's  report. 

Edwards-    Browns-  Pal-  Shawnee- 

ville            ville  myra  town 

Bank  notes  originally  received..$83,5i6.oo   $48,834.00  $47,265.00  $84,685.00 

Expenses                                 11,501.31      9,315-88  7,588.41  21,576.31 

Probable  loss                             10,000.00    unknown  2,924.51  unknown 

Amount  of  loans  repaid             78,064.38    unknown  36,467.18  unknown 

Amount  still  due                       21,982.07    unknown  4,410.17  44,140.85 

Bank  notes  retired                    66,253.00     26,989.94  42,563.36  44,460.57 

Debts  in  collector's  hands          20,764.19     *7,686.57  not  given  *35,992.98 

Paid  by  debtor  under  relief  act     966.82        628.00  335.25  *667.3i 

152Ford,  History  of  Illinois,  48. 

163January  25,  1834. 


58  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [416 


Knox  points  out,  estimates^  of  jthe  loss  to  the  state  treas- 
ury do  not  afford  an  accurate  view  of  the  total  damage 
inflicted  by  the  state  bank.  The  losses  to  individuals,  the 
injury  inflicted  upon  the  economic  activities  of  a  pioneer 
community  and  the  impairment  of  the  state's  credit  can- 
not even  be  estimated.154  According  to  a  writer  of  the 
period,  the  industry  and  thrift  that  characterized  the  three 
years  following  the  dissolution  of  the  bank  brought  more 
genuine  relief  to  debtors  "than  could  ten  such  banks."155 

154Knox,  History  of  Banking  in  the  United  States,  716. 
155W.  H.  Brown,  in  Chicago  American,  December  25,  1840. 


CHAPTER  IV 


BANKING  AND  INTERNAL  IMPROVEMENTS. 

With  the  winding  up  of  the  affairs  of  the  old  state  bank 
in  1831  came  a  brief  period  of  relief  so  far  as  the  existence 
of  local  banks  of  issue  was  concerned.  The  legislature  not 
only  defeated  all  banking  projects  that  were  presented  to  it 
at  its  sessions  in  1830-31  and  1832-33,  but  acts  of  incorpora- 
tion of  all  sorts  contained  clauses  prohibiting  the  exer- 
cise of  banking  powers.  In  the  senate,  however,  there  was 
a  strong  sentiment  in  favor  of  establishing  a  bank  on  a 
specie  basis ;  in  fact,  in  1833  a  project  of  this  character  was 
lost  by  a  single  vote.1  Failing  in  this  effort  the  friends  of 
the  proposed  measure  sought  to  prevail  upon  Governor 
Reynolds  to  call  the  legislature  in  special  session,  but  he  re- 
fused to  act  on  the  ground  that  conditions  were  not  yet 
ripe  for  such  an  institution.2 

In  the  gubernatorial  campaign  of  1834  General  Dun- 
can, the  successful  candidate,  although  a  partisan  of  the 
United  States  bank  refused  to  make  that  institution  a  local 
issue  and  thus  avoided  the  alienation  of  the  Jackson  men.3 
Governor  Reynolds  resigned  a  short  time  before  the  in- 
auguration of  Governor  Duncan,  the  office  being  filled  for 
the  time  being  by  Acting  Lieutenant-Governor  Ewing,  a 
friend  of  state  banking.  In  his  message  to  the  legislature 
which  assembled  in  December,  1834,  Mr.  Ewing  urged  the 
immediate  establishment  of  a  state  bank  "upon  a  solid 
gold  and  silver  reality."4  The  next  day  Governor  Duncan 
delivered  his  inaugural  address  in  which  he  asked  the  leg- 
islature to  deal  with  the  banking  question  with  the  great- 
est caution.  He  granted  that  "banks  may  be  made  useful 
in  society"  but  he  insisted  that  a  system  of  banking  which 
would  successfully  meet  the  peculiar  conditions  prevailing 
in  Illinois  had  not  yet  been  worked  out.5 

1Sangamo  Journal,  March  g,  1833. 
2Alton  American,  November  22,  1833. 
3Short,  History  of  Morgan  County,  691. 
^Senate  Journal,  1834-35,  P-  12. 
5 Ibid.,  13. 

59 


60 


THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [418 


Meanwhile  the  state  had  begun  to  recover  from  the 
follies  of  the  fiat  paper  days  in  spite  of  the  fact  that  occa- 
sional foreign  bank  notes  found  their  way  into  the  channels 
of  local  trade.  The  treasury  was  now  able  to  meet  its  obli- 
gations with  cash  and  the  general  prosperity  of  the  com- 
munity was  equally  encouraging.6  As  this  situation  con- 
tinued, the  need  of  more  currency  and  adequate  banking 
facilities  became  recognized.  After  the  burning  of  the 
notes  of  the  old  state  bank  and  the  failure  of  so  many  of 
the  "paper  money  mills''  of  the  Middle  West  and  South, 
there  was  little  available  currency  for  the  handling  of  the 
increasing  volume  of  trade.  Aside  from  a  few  notes  of  the 
Bank  of  the  United  States  and  still  fewer  United  States 
silver  coins,  Spanish,  French  and  Mexican  pieces  consti- 
tuted the  only  generally  acceptable  medium  of  exchange.7 

In  addition  to  the  scarcity  of  money,  a  number  of 
other  circumstances  seemed  to  point  the  legislature  to 
establishment  of  a  second  state  bank.  In  the  first  place, 
it  was  predicted  that  the  closing  of  the  United  States  Bank 
would  cause  widespread  distress  unless  the  states  took 
immediate  steps  to  fill  the  gap  left  by  it.8  The  other  states 
were  anticipating  an  era  of  great  prosperity  by  authorizing 
the  establishment  of  banks  of  issue,  and  it  was  argued 
that  their  notes  would  flood  Illinois  unless  a  local  bank 
were  established  as  a  measure  of  self-protection.9  Lastly 

6Ford,  History  of  Illinois,  170. 

7Lorenzo  Bull,  in  Illinois  Bankers'  Association  Reports,  1901,  p.  20. 
8Sangamo  Journal,  November  24,  1832,  September  29,  1833,  and  Sep- 
tember 22,  1832. 

9Illinois  Advocate,  Vandalia,  March  16,  1833.  Sangamo  Journal,  Feb- 
ruary 9,  1833.  The  following  table  taken  from  Dewey,  Financial  History 
of  the  United  States,  255,  shows  the  rapid  expansion  of  banking  at  this 


period : 

Number  of 

Capital 

Circulation 

Loans 

Year 

banks 

(millions) 

(millions) 

(millions) 

1829 

329 

1 10.2 

48.2 

137.0 

1834 

506 

200.0 

94.8 

324.1 

i835 

704 

231.2 

103.7 

365.2 

1836 

713 

251.9 

140.3 

457-5 

1837 

788 

290.8 

149.2 

525.1 

419]  BANKING  AND  INTERNAL  IMPROVEMENTS 


61 


this  same  wave  of  speculative  prosperity  which  had  gradu- 
ally been  moving  westward  was  beginning  to  be  felt  in 
Illinois.10  Continued  peace  among  the  nations,  together 
with  the  rapid  expansion  of  the  United  States,  had  stimu- 
lated the  sale  of  public  lands  to  an  enormous  degree.  This 
in  turn  led  to  the  formulation  of  elaborate  systems  of  in- 
ternal improvement  in  order  that  a  substantial  increase 
in  land  values  might  result.11  By  1835  the  Illinois  specu- 
lator had  just  reached  the  point  where  he  was  demanding 
the  "accommodation"  which  could  not  be  had  without 
access  to  a  bank  plentifully  supplied  with  notes.12 

The  Democrats  in  the  Illinois  legislature  which  met 
in  1834-35  were  supposedly  hostile  to  all  banks,  while  the 
Whigs  were  committed  to  a  federal  as  opposed  to  a  state 
bank.  By  a  combination,  however,  of  the  Whig  forces 
with  those  Democrats  who  interpreted  President  Jack- 
son's hostility  to  the  Bank  of  the  United  States  as  an  in- 
dorsement of  the  state  institutions,  a  bill  for  the  creation 
of  a  new  state  bank  was  passed  by  both  houses.  Ford  con- 
tends that  the  necessary  majority  of  one  vote  in  the  lower 
house  was  obtained  by  trading  a  states  attorneyship  for 
it  and  that  similar  inducements  were  held  out  to  sena- 
tors.13 In  the  council  of  revision  Governor  Duncan  oppos- 
ed the  measure,  but  the  rest  of  the  members  gave  it  their 
sanction  and  it  became  a  law  on  February  12,  1835.14 

The  main  provisions  of  the  charter  of  the  new  state 
bank  were  as  follows :  Of  the  authorized  capital  of  one 
and  one-half  million  dollars,  all  but  one  hundred  thousand 
dollars  was  to  be  sold  to  individuals.  The  remaining 
shares  were  to  be  issued  to  the  State  of  Illinois  whenever 
the  legislature  saw  fit  to  provide  the  money.15  A  further 
stock  issue  to  individuals  of  a  million  dollars  might  be 
made  when  conditions  warranted  it.16    The  charter  was 

10Ford,  History  of  Illinois,  170. 

11Dewey,  Financial  History  of  United  States,  224,  225. 

12Ford,  History  of  Illinois,  170. 

™Ibid. 

14Sangamo  Journal,  May  13,  1842. 
15Laws  of  Illinois,  1834-35,  p.  7,  Section  1. 
16Ibid.,  Section  2. 


62  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [420 

to  expire  January  1,  I860.17  Until  then  the  bank  had  full 
power  to  discount  bills  and  notes,  receive  desposits,  buy 
and  sell  bullion  and  bills  of  exchange  and  issue  bank 
notes.18  The  ownership  of  real  estate,  aside  from  the  land 
upon  which  the  bank  buildings  might  be  built,  was  pro- 
hibited.19 In  view  of  the  freedom  with  which  the  bank's 
funds  were  used  in  speculation,  it  is  important  to  note 
that  the  directors  were  specifically  forbidden  to  deal  direct- 
ly or  indirectly  in  the  purchase  or  sale  of  any  goods  or 
wares  whatever.20  The  movement  of  population  northward 
led  the  legislature  to  locate  the  principal  bank  at  Spring- 
field instead  of  Vandalia,  which  continued,  however,  to  be 
the  capital  until  1839.  In  order  to  appease  the  people  of 
Vandalia,  the  bank  was  required  to  maintain  a  branch  in 
that  place.21  If  subscriptions  for  more  than  the  authorized 
one  million  four  hundred  thousand  dollars  worth  of  stock 
were  received,  it  was  provided  that  the  excess  should  be 
deducted:  first,  from  the  amounts  subscribed  by  non- 
residents; second,  from  subscriptions  by  corporations; 
third,  from  subscriptions  for  more  than  one  thousand  dol- 
lars worth  of  stock ;  fourth,  from  other  subscriptions. 

Each  subscriber  was  required  to  make  a  first  payment 
of  ten  dollars  in  specie,  or  its  equivalent,  for  each  share  of 
stock  purchased.22  The  nine  directors  were  each  required 
to  own  at  least  ten  shares  of  stock  and  must  be  citizens  of 
Illinois.  In  voting,  the  method  already  described  in  con- 
nection with  the  territorial  Bank  of  Illinois,  of  giving  to 
the  small  stockholder  more  than  a  proportional  voice,  was 
adopted.23  The  selection  of  officers  for  the  bank  was  left 
to  its  board  of  directors.  In  order  to  augment  its  avail- 
able capital  the  bank  was  empowered  to  receive  on  deposit 
or  to  borrow  any  sum  not  exceeding  one  million  dollars 

17Laws  of  Illinois,  1834-35,  p.  7,  Section  3. 

18Ibid.,  Section  4. 

19Ibid.,  Section  5. 

20Ibid.,  Section  6. 

21Ibid.,  Section  8. 

22Ibid.}  Section  10. 

23Ibid.,  Section  II. 


421]  BANKING  AND  INTERNAL  IMPROVEMENTS  63 

and  to  re-loan  it  at  not  more  than  ten  per  cent  upon 
Illinois  real  estate.  The  restriction  was  made,  however, 
that  no  loan  should  exceed  half  the  value  of  the  pledged 
property  and  that  no  borrower  should  be  granted  a  loan 
from  this  fund  for  a  longer  period  than  five  years.24  When 
the  bank  had  accumulated  two  hundred  fifty  thousand 
dollars  in  specie,  the  directors  were  to  notify  the  governor 
who  in  turn  should  send  persons  to  count  the  money  and 
to  receive  the  oaths  of  the  bank's  officers  to  the  effect  that 
the  money  was  the  bona  fide  property  of  the  bank.  As 
soon  as  the  governor  was  satisfied  that  the  bank  had  com- 
plied with  the  terms  of  its  charter  he  was  to  proclaim 
through  at  least  four  Illinois  newspapers  that  the  bank 
was  ready  for  business.25  The  payment  of  the  remaining 
instalments  on  the  bank's  shares  was  left  to  the  discre- 
tion of  the  directors  who  were  empowered  to  declare  shares 
forfeited  if  the  owner  failed  to  respond  to  a  call.28  The 
lawful  rate  of  interest  for  loans  of  sixty  days  and  less 
was  fixed  at  six  per  cent.  Other  loans  were  to  bear  a  rate 
of  eight  per  cent. 

The  legislature  made  an  effort  to  safeguard  the  in- 
terest of  the  holders  of  the  bank's  notes  by  providing: 

(1)  The  outstanding  issue  of  notes  should  never  exceed 
two  and  one-half  times  the  amount  of  paid  up  capital; 

(2)  The  amount  of  loans  and  discounts  should  never 
exceed  three  times  the  paid  up  capital ;  ( 3 )  Each  director 
was  personally  liable  for  the  violation  of  these  provisions 
unless  he  had  caused  a  written  protest  to  be  incorporated 
in  the  minutes;27  (4)  If  any  note  holder,  within  ten  days 
after  making  the  demand,  failed  to  receive  specie  to  the 
full  face  value  of  a  state  bank  note,  the  bank  was  required 
to  go  into  liquidation ;  ( 5 )  Furthermore,  a  penalty  of  ten 
per  cent  per  annum  must  be  paid  to  all  such  note  holders 
until  their  notes  were  redeemed;28  (6)  Finally,  no  note  of 

24Laws  of  Illinois,  1834-35,  P-  7,  Section  18. 
25Ibid.,  Section  19. 
26 Ibid.,  Section  20. 
27 Ibid.,  Section  24. 
28Ibid.,  Section  26. 


64  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [422 


a  less  denomination  than  five  dollars  might  be  issued.29 
The  legislature  is  further  to  be  commended  for  providing 
that  there  should  hot  be  a  repetition  of  the  disgraceful 
relief  laws  which  had  characterized  the  history  of  the 
old  state  bank.30 

The  constitution  of  1818,  as  has  already  been  noted, 
specified  that  there  should  be  no  other  banks  in  the  state 
save  a  state  bank  and  the  two  territorial  banks  which  were 
then  in  existence.  The  charters  of  the  old  territorial 
Bank  of  Illinois  at  Shawneetown  and  the  City  and  Bank 
of  Cairo  corporation  had  never  been  declared  void  although 
the  former  concern  had  gone  out  of  business  in  1823 
and  the  latter  had  never  accepted  its  charter.  Conse- 
quently it  was  assumed  that  their  charters  were  forfeited 
by  non-use.31  Nevertheless  in  their  eagerness  to  share  in 
the  coming  tide  of  prosperity  and  internal  development, 
as  Lyman  J.  Gage  puts  it,32  the  Bank  of  Cairo  "was 
galvanized  into  a  sickly  life"  at  Kaskaskia,  and  the  Bank 
of  Illinois  corporation  was  reorganized  and  began  business 
late  in  1834. 

The  twenty  year  charter  of  the  Bank  of  Illinois33 
would  have  expired  on  January  1,  1837,  had  not  the  legis- 
lature by  an  act  approved  February  12,  1835,34  extended 
its  lease  of  life  until  1857.  The  old  charter  was  amended 
in  several  important  respects.  In  the  first  place,  the 
owners  of  the  territorial  bank  who  held  stock  in  the  new 
institution  were  exempted  from  the  forfeiture  of  their 
stock  and  all  previous  payments  upon  it,  if  they  were 
unable  to  meet  the  calls  of  the  directors  for  instalments. 
On  the  contrary,  they  were  entitled  to  the  payment  of  all 
past  instalments,  less  interest  and  dividends.  Secondly, 
the  governor  was  required  to  subscribe  for  the  one  hun- 
dred thousand  dollars  worth  of  stock  reserved  for  the 

29Laws  of  Illinois,  1834-35,  P-  7>  Section  34. 
30Ibid.,  Section  31. 

31Greene  and  Thompson,  Governors'  Letter  Books,  ii,  60,  61. 

32 World's  Congress  of  Bankers  and  Financiers,  428. 

33This  bank  should  not  be  confused  with  the  new  state  bank  of  Illinois. 

34Laws  of  Illinois,  1834-35,  p.  21. 


423]  BANKING  AND  INTERNAL  IMPROVEMENTS 


65 


state  in  the  old  charter.35  This  he  was  to  sell  at  auction 
at  the  highest  premium,  the  profit  to  go  to  the  state. 

There  were  many  more  or  less  disinterested  persons 
who  were  opposed  to  allowing  the  Bank  of  Illinois  to 
resume  business  in  the  face  of  a  constitutional  prohibi- 
tion of  all  non-state  banks.36  The  question  was  at  length 
taken  into  the  courts  where,  first,  the  validity  of  the 
original  charter  was  attacked  on  the  ground  that  Con- 
gress bad  never  given  to  the  Territory  of  Illinois  the 
power  to  establish  banks;  secondly,  the  act  of  1825  was 
held  to  charter  a  private  institution  in  contravention  of 
the  Illinois  constitution.  The  question  was  finally  dis- 
posed of  by  the  supreme  court  of  the  state  in  People 
vs.  Marshall,37  when  it  was  decided  that  the  legislature 
of  the  territory  had  acted  within  its  rights  in  chartering 
banks  and  that  the  charter  then  granted  had  never  passed 
out  of  existence. 

The  books  for  subscriptions  to  the  stock  of  the  state 
bank  were  opened  on  April  10,  183538  and  in  less  than 
three  weeks  the  one  million  four  hundred  thousand  dol- 
lars worth  of  stock  was  several  times  over-subscribed,39 
the  total  applications  for  stock  amounting  to  $8,007,500.4° 
In  accordance  with  Section  10  of  the  charter,  the  sub- 
scribers were  divided  into  four  classes,  (1)  non-residents, 
(2)  corporations,  (3)  those  resident  citizens  who  sub- 
scribed for  more  than  a  thousand  dollars  worth  of  stock, 
(4)  other  persons.  Beginning  with  class  four  and  pro- 
ceeding in  reverse  order  to  the  other  classes  the  shares 
were  to  be  given  out  as  long  as  they  lasted.  John  Till- 
son  of  Hillsboro,  Thomas  Mather  of  Kaskaskia,  Godfrey, 
Oilman  and  company  of  Alton,  Judge  Smith41  of  the 

35Laws  of  Illinois,  1816-17,  p.  II. 

3GGreene  and  Thompson,  Governors'  Letter  Books,  ii,  59,  60. 
37 1  Gilm.,  672. 

S8Sangamo  Journal,  April  11,  1835. 
S9Ibid.,  May  2,  1835. 

40Ibid.,  May  23,  1835.   Chicago  Democrat,  May  20,  1835. 
41One  of  the  persons  attacked  by  Governor  Edwards  for  the  mis- 
management of  the  Edwardsville  branch  of  the  old  state  bank. 


66  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [424 

state  supreme  bench,  and  Samuel  Wiggins  of  Cincinnati42, 
had  contracted  in  the  East  for  large  amounts  to  be  in- 
vested in  state  bank  stock.  The  charter  of  the  bank 
sought  to  avoid  this  very  thing  by  giving  the  preference 
to  the  small  resident  subscribers.  Hence,  in  order  to 
be  included  in  this  favored  class,  these  men,  according 
to  Ford,  empowered  thousands  of  persons  within  the 
state  to  act  as  their  agents  in  subscribing  for  the  stock 
and  thus  secured  a  controlling  interest.  When  the  com- 
missioners in  charge  of  the  subscription  lists  undertook 
the  work  of  apportionment  of  shares,  a  struggle  for  the 
control  of  the  bank  was  precipitated  between  Judge  Smith 
on  the  one  side  and  the  other  persons  just  named  on  the 
other.  The  first  clash  came  when  a  commissioner  moved 
that  shares  bought  by  residents  on  their  own  account  be 
separated  from  those  bought  by  them  as  agents  for  others. 
Judge  Smith  favored  the  motion  and  expressed  his  will- 
ingness to  take  oath  to  the  effect  that  he  owned  and  had 
paid  for  with  his  own  money  every  share  of  stock  sub- 
scribed for  by  him.  Through  the  preponderating  influence 
of  the  other  heavy  investors,  the  motion  was  lost  and  the 
bank  was  thereafter  controlled  by  the  Tillson,  Mather, 
Godfrey-Gilman  interests.  Mather  was  made  president 
of  the  bank  and  a  directorate  was  chosen  which  even 
Ford  admits  was  as  capable  as  could  be  found  in  the 
state.43  The  bank  during  its  entire  existence  continued 
to  be  dominated  by  non-resident  shareholders.44 

Having  satisfied  the  governor  that  it  had  in  its 
vaults  the  requisite  two  hundred  and  fifty  thousand  dol- 

42The  capitalist  who  loaned  $100,000  to  the  state  in  183 1. 

43This  account  of  the  struggle  for  the  control  of  the  state  bank  is 
taken  from  Ford,  History  of  Illinois,  174,  and  from  the  article  on  the  state 
bank  in  the  Illinois  Annual  Register  and  Business  Directory  (Chicago, 
1847). 

440f  the  14,000  shares  of  $100  each,  five  persons  owned  7539,  as  fol- 
lows :  Samuel  Wiggins,  1642 ;  M.  J.  Williams,  577 ;  Griggs  and  Company, 
1202 ;  W.  S.  Gilman,  2567.  Four  of  the  five  lived  in  Cincinnati,  Mr.  Gilman 
being  the  only  resident  of  Illinois.  Eleven  others  controlled  3948  shares, 
making  a  total  of  11,487  shares  in  the  hands  of  but  sixteen  persons. 
Sangamo  lournal,  March  5,  1836. 


425]  BANKING  AND  INTERNAL  IMPROVEMENTS 


67 


lars  in  specie,  the  principal  bank  was  opened  for  business 
in  July,  1835.45  Before  the  end  of  the  year  branches  had 
been  established  at  Galena,  Jacksonville,  Alton,  and 
Chicago  in  addition  to  the  branch  located  at  Vandalia 
by  the  legislature.40  Galena  and  Alton  were  probably 
chosen  because  of  the  great  interest  that  centered  in  their 
development  and  because,  as  will  be  seen,  the  leading  in- 
vestors in  bank  stock  were  heavily  involved  in  the  projects 
that  were  being  carried  on  at  these  points.  The  legis- 
lature having  by  the  act  of  January  16,  1836,  authorized 
three  additional  branches47  establishments  were  eventu- 
ally opened  at  Danville,  Quincy,  Belleville,  and  Mt.  Car- 
mel.48  Mr.  N.  H.  Ridgely,  who  had  secured  his  training 
as  chief  clerk  of  the  branch  of  the  United  States  Bank 
at  St.  Louis,49  was  elected  cashier  of  the  principal  bank 
at  a  salary  of  three  thousand  dollars.  He  was  allowed 
one  teller  at  a  thousand  dollars  and  two  clerks  at  eight 
hundred  dollars  each.  In  addition,  President  Mather 
was  voted  twenty-five  hundred  dollars  per  annum  for 
his  services.  By  the  time  the  nine  branches  were  put 
into  operation  the  list  of  officers  had  been  increased  to 
thirty-five  and  the  annual  salary  list  to  $30,600.5° 

Even  with  the  widely  distributed  system  of  branches, 
it  was  impossible  for  a  person  offering  real  estate  as  se- 
curity to  deal  with  the  bank  directly,  hence  the  plan  was 
adopted  of  designating  persons  in  different  localities 
as  inspectors  for  the  bank.  These  persons  investigated, 
at  the  borrower's  expense,  the  character  of  the  property 
offered  as  security  and  made  an  examination  of  the 
title.51     In  accordance  with  the  charter,  the  amount 


45 Illinois  Advocate,  July  8,  1835. 

*QIbid.,  February  17,  1836;  Bross,  History  of  Chicago,  41. 
47Laws  of  Illinois,  1835-36,  pp.  237,  238. 
^Reports  of  Session,  1839-40,  p.  285. 

49U.  S.,  H.  of  R.,  Comm.  Reports,  1836-37,  Doc.  no.  193,  p.  607. 
^Reports  of  Session,  1839-40,  pp.  285,  286. 

51Sangamo  Journal,  August  15,  1835.  A  fee  of  from  three  to  ten 
dollars  was  paid.  Special  Report  of  Invest.  Comm.,  Illinois  General  As- 
sembly, 1836-37,  p.  36. 


68  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [426 

loaned  upon  real  estate  could  not  exceed  fifty  per  cent 
of  the  valuation  put  upon  it  by  the  bank's  representa- 
tives. No  loans  upon  town  property  were  allowed52  and 
loans  upon  personal  security  were  confined  to  the  dis- 
counting of  business  paper,  for  the  reason  that  the  bank 
was  not  a  government  depositary,  hence  was  constantly 
subject  to  a  loss  of  its  specie  on  account  of  the  heavy  land 
sales.53  The  depositary  at  St.  Louis54  accepted  the 
notes  of  the  state  bank  as  far  as  private  business  was  con- 
cerned, but  when  it  was  preparing  to  forward  government 
deposits  it  was  accustomed  to  send  local  bank  notes  home 
for  redemption,  a  practice  which  compelled  the  Illinois 
bank  to  curtail  its  loans.  All  discounts  were  passed 
upon  at  the  daily  meeting  of  the  exchange  committee  of 
the  board  of  directors  and  were  then  submitted  to  the  full 
board  at  its  biweekly  meeting.  The  exchange  committee 
consisted  of  the  president,  the  cashier  and  two  directors 
chosen  monthly  and  derived  its  name  from  the  fact  that 
its  original  function  was  to  pass  upon  the  purchase  of  bills 
of  exchange.  This  branch  of  the  bank's  business  received 
special  attention  and  encouragement  for  the  reason  that 
bills  of  exchange  were  considered  "safer"  and  "more  man- 
ageable" than  the  ordinary  accommodation  paper  even 
if  the  profits  were  not  so  large.  Moreover,  bills  of  ex- 
change on  eastern  cities  were  readily  convertible  into 
specie  if  an  emergency  demanded  it,  while  local  accom- 
modations could  be  called  in  only  with  the  greatest  diffi- 
culty. For  this  reason  it  was  contended  that  eastern  bills 
purchased  by  the  bank  could  be  used  as  the  basis  of  a  still 
larger  volume  of  domestic  loans.55   The  directors  were  de- 

52Special  Report,  Invest.  Comm.,  Illinois  General  Assembly,  1836-37, 
p.  36. 

53Sangamo  lournal,  March  5,  1836. 

r>4Ibid.,  May  21,  1836.  After  the  disastrous  failure  of  the  Bank  of 
Missouri,  that  state  was  left  without  any  banking  institution  save  the 
branch  of  the  United  States  Bank  which  was  soon  to  go  out  of  existence. 
The  legislature  refused  to  charter  any  more  banks,  so  the  large  federal 
deposits  were  given  to  the  St.  Louis  "agency"  of  the  Commercial  Bank 
of  Cincinnati.    U.  S.,  H.  of  R.,  Comm.  Reports,  1836-37.  No.  193,  p.  598. 

^Special  Report,  Invest.  Comm.,  Illinois  General  Assembly,  1836-37, 
p.  40. 


427] 


BANKING  AND  INTERNAL  IMPROVEMENTS 


69 


termined  to  prevent  a  depreciation  of  the  bank's  notes 
and  yet  desired  to  accomplish  this  aim  with  a  minimum 
payment  of  specie  for  their  redemption.  This  policy  of 
trying  to  avoid  both  "Scylla  and  Charybdis"  at  times  com- 
pelled the  adoption  of  some  extraordinary  measures.  For 
instance,  while  the  negotiations  were  in  progress  with 
the  St.  Louis  depositary  which  led  to  its  agreeing  to  accept 
state  bank  paper  under  the  conditions  noted  above,  a 
large  amount  of  the  Illinois  notes  accumulated  at  St. 
Louis.  Since  the  depositary  had  not  yet  decided  to  accept 
them  at  par,  merchants  sold  them  to  brokers  at  a  discount 
of  two  or  three  per  cent  rather  than  go  to  the  trouble 
of  sending  them  back  for  redemption.  This  caused  great 
anxiety  on  the  part  of  the  state  bank  officials,  and  funds 
to  the  amount  of  nineteen  thousand  five  hundred  dollars 
were  promptly  forwarded  to  an  agent  of  the  state  bank  at 
St.  Louis  with  the  instruction  that  he  should  buy  all  the 
Illinois  paper  offered,  at  one  per  cent  discount.  He  had 
bought  very  little  of  the  paper  when  the  depositary  agreed 
to  accept  Illinois  paper  and  the  notes  went  to  par.  The 
directors  of  the  bank  were  then  accused  of  making  a  profit 
by  speculating  in  their  own  paper,  but  testified  before 
a  committee  of  the  legislature  that  the  small  profit  made 
was  more  than  offset  by  the  expenses  incurred.56  On 
another  occasion,  President  Mather  purchased  sixteen  hun- 
dred dollars  worth  of  the  bank's  paper  from  a  New  York 
broker  at  a  discount  of  one  and  three-fourths  per  cent, 
his  excuse  being  that  it  was  liable  to  fall  into  the  hands 
of  westward  bound  immigrants  who  would  present  it  for 
redemption.57. 

The  bank  had,  however,  a  most  effective  means  of  pro- 
tecting its  small  supply  of  specie.  Instead  of  having  a 
common  form  of  bank  note,  redeemable  at  the  parent 
bank  or  any  of  its  branches  separate  issues  were  provided 
for  each  branch.  Consequently,  notes  bearing  the  name 
of  one  branch  were  sent  to  another  and  distant  branch 

^Special  Report,  Invest.  Comm.,  Illinois  General  Assembly,  1836-37,, 
p.  40. 

"Ibid. 


70  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [428 


to  be  loaned,  but  were  redeemable  only  at  the  place  named 
on  the  face  of  the  note.  In  this  way,  the  whole  of  the 
note  issue  was  kept  in  circulation  without  many  demands 
being  made  upon  the  specie  reserve.5  s 

On  December  7,  1835,  the  governor  convened  the  legis- 
lature in  special  session  to  consider,  among  other  things, 
the  advisability  of  increasing  the  capital  stock  of  the 
state  bank.  It  will  be  recalled  that  one  hundred  thousand 
dollars  of  the  original  issue  was  reserved  for  the  state 
but  that  the  amount  owned  by  private  individuals  could 
be  increased  by  one  million  dollars.  The  charter  did  not 
specify  whether  the  state  or  the  bank  could  control  this 
additional  issue  of  stock,  hence  Governor  Duncan  urged 
the  legislature  to  exercise  the  privilege  of  issuing  and 
selling  these  shares  before  the  bank  had  a  chance  to  act. 
At  the  time  the  governor's  call  was  issued,  state  bank 
shares  were  quoted  at  113  and  the  prospect  of  an  addition 
of  one  hundred  and  thirty  thousand  dollars  in  premiums 
to  the  state's  revenues  appealed  to  the  governor  as  a  wise 
stroke  of  policy.  By  the  time  the  legislature  assembled, 
however,  the  stock  had  fallen  in  price,  but  Governor  Dun- 
can predicted  that  it  would  soon  rise  to  120  or  even  130. 
He  therefore  urged  the  immediate  passage  of  an  act  desig- 
nating the  state  as  an  agent  to  sell  one  million  dollars 
worth  of  state  bank  stock  at  not  less  than  one  hundred 
ten  dollars  per  share,  the  premium  to  go  to  the  state 
treasury.59 

The  bank's  friends  in  the  legislature  were  too  numer- 
ous and  influential  to  submit  to  such  a  plan,  and  secured 
in  its  stead  the  passage  of  the  act  of  January  16,  1836, 
to  which  reference  has  already  been  made.  In  addition  to 
the  section  providing  for  three  additional  branches,  the 
act  specifically  reserved  to  the  directors  of  the  bank  the 
right  to  sell  additional  issues  of  stock.  Furthermore,  it 
was  definitely  stated  that  the  profits  accruing  from  the 

&8Chicago  American,  March  12,  1836;  Ford,  History  of  Illinois,  179; 
Special  Report,  Invest.  Comm.,  Illinois  General  Assembly,  1836-37,  p.  36. 
59Governor's  message,  Senate  Journal,  1835-36,  p.  9. 


429]  BANKING  AND  INTERNAL  IMPROVEMENTS 


71 


sale  of  shares  should  belong  to  the  bank.00  Section  25  of 
the  charter  had  provided  that  the  bank  should  be 
granted  ten  days  in  which  to  redeem  its  notes.  The  time  y 
was  now  extended  to  sixty  days.01  As  a  compensation  to 
the  state  for  the  privileges  above  granted,  the  bank  was 
required  to  relieve  the  state  of  the  payment  of  the  principal 
and  interest  of  the  loan  of  one  hundred  thousand  dollars  , 
secured  from  Samuel  Wiggins  in  1831.° 2  The  bank  ac- 
cepted this  condition  June  9,  1836,  and  paid  the  interest 
on  the  loan  until  1841,  when  it  was  relieved  of  further 
responsibility  in  the  matter  by  surrendering  one  hundred 
thousand  dollars  in  state  bonds.03  Meanwhile  the  directors 
issued  for  sale  at  public  auction  the  additional  one  million 
dollars  worth  of  stock  and  made  an  arrangement  with  Mr. 
Wiggins  whereby  a  syndicate  organized  by  him  was  to 
purchase  at  110  all  the  shares  left  unsold.  When  the 
auction  was  over  it  was  found  that  only  1335  of  the  shares  / 
ahad  been  sold,  so  Mr.  Wiggins  and  his  partners  were  com- 
pelled to  take  the  remaining  8665.04 

The  legislature  at  the  special  session  to  which  refer- 
ence has  just  been  made  provided  that  the  bills  of  the 
state  bank  and  branches  should  be  receivable  for  state 
and  county  taxes  and  in  payment  of  the  principal  and  in- 
terest of  the  debts  due  the  college,  school  and  seminary 
funds.  A  proviso  was  made,  however,  that  the  state  bank 
was  not  to  construe  the  act  as  preventing  the  state  from 
conferring  a  like  favor  upon  the  bills  of  the  other  Illinois 
banks.  In  spite  of  the  auspicious  beginning  made  by  the 
state  bank,  the  legislature  had  learned  that  it  was  best 
to  be  forearmed  when  dealing  with  paper  money.  Accord- 
ingly the  proviso  was  inserted  in  the  bill  that  if  the  gov- 
ernor, auditor  and  treasurer  should  decide  that  the  state 
was  likely  to  suffer  any  loss  by  accepting  state  bank  notes, 
they  should  at  once  cause  a  notice  to  be  inserted  in  every 

60Laws  of  Illinois,  1835-36,  p.  237,  Section  1. 

61Ibid.,  Section  3. 

92Ibid.,  238,  Section  4. 

Q3Re  ports  of  Session  (H.  R.),  185 1,  p.  485. 

^Reports  of  Session  {Senate),  1840-41,  p.  336. 


72  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [430 


newspaper  of  the  state  to  the  effect  that  these  notes  were 
no  longer  receivable  in  payment  of  public  dues.65 

It  will  be  recalled  that  one  of  the  influences  which 
aided  in  securing  the  passage  of  the  bank  bill  was  the 
prospect  of  securing  a  share  of  the  federal  deposits.  The 
very  day66  on  which  the  charter  of  the  bank  was  approved, 
Mr.  Mather  took  the  matter  up  with  the  Washington  gov- 
ernment through  Senator  Kane.67  A  few  weeks  later 
Theophilus  W.  Smith,  who  had  not  yet  crossed  swords 
with  his  opponents  for  the  control  of  the  bank,  urged 
Secretary  of  the  Treasury  Woodbury  to  take  favorable 
action  at  once  in  order  to  facilitate  the  sale  of  the  stock.68 
To  these  letters  as  well  as  similar  communications  from 
other  Illinois  bank  promoters,  Secretary  Woodbury  made 
the  same  reply,  that  he  did  not  feel  justified  in  making  a 
depositary  of  a  bank  which  as  yet  existed  only  on  paper.69 
As  soon  as  the  bank  was  ready  for  business,  a  formal  ap- 
plication was  made  but  Mr.  Woodbury  pleaded  as  an 
excuse  for  delay  a  lack  of  definite  information  as  to  the 
ownership  and  financial  standing  of  the  bank.  A  list  of 
the  stock  holders  was  promptly  forwarded  to  him,  together 
with  statements  as  to  the  bank's  standing  at  various  in- 
tervals. Mr.  Woodbury  next  sought  to  discourage  the 
directors  by  indicating  to  them  the  little  need  there  was 
for  a  disbursing  agency  in  a  thinly  populated  community. 
He  warned  them  that  the  large  revenues  collected  in  the 
state  from  the  sale  of  public  lands  would  have  to  be  trans- 
ferred at  once  to  other  parts  of  the  country,  leaving  but 
a  very  small  permanent  balance  with  the  state  deposi- 
tary.70   President  Mather,  however,  promptly  expressed 

65Laws  of  Illinois,  1835-36,  p.  244. 
66February  12,  1835. 

67Page  599  of  the  proceedings  of  the  special  committee  appointed  by 
the  national  house  of  representatives  to  investigate  the  relations  which 
existed  between  R.  M.  Whitney,  special  examiner  of  depositary  banks,  and 
R.  M.  Whitney  and  Company,  Washington,  representatives  of  a  number 
of  depositaries. 

68U.  S.,  H.  of  R.,  Special  Comm.  Report,  597. 

™Ibid. 

™Ibid.,  604. 


431]  BANKING  AND  INTERNAL  IMPROVEMENTS  73 

the  willingness  of  the  directors  to  be  content  with  what- 
ever funds  the  government  saw  fit  to  allot  to  them.71  In 
the  meantime  Judge  Smith,  defeated  in  his  attempt  to  con- 
trol the  bank,  carried  the  fight  to  Washington.  With  his 
letter  to  Mr.  Woodbury,  attacking  the  men  in  control  of 
the  bank,  he  inclosed  a  copy  of  the  proceedings  of  the  com- 
mission which  allotted  the  shares  of  stock.  Having  but  a 
few  months  before  besought  Mr.  Woodbury  to  make  the 
bank  a  depositary,  Mr.  Smith  now  felt  it  his  special  duty 
to  apprize  the  treasury  department  of  the  great  danger  of 
entrusting  the  present  regime  of  unscrupulous  politicians 
with  government  funds.72 

It  is  well  to  note  here  that  the  bank  was  under  the 
control  of  Whigs  and  that  Mr.  Smith  and  other  political 
opponents  used  this  fact  against  it  with  the  Jackson  ad- 
ministration. In  like  manner,  William  Kinney  in  a  letter 
to  Mr.  Woodbury  characterized  the  state  bank  as  an  "insti- 
tution chartered  by  the  influence  of  a  designing  man 

for  the  sole  purpose  of  speculation  both  in  pecuniary 
and  political  matters."  He  predicted  that  if  this  Whig 
institution  were  entrusted  with  federal  deposits  it  would 
be  so  ungrateful  as  to  turn  against  the  Van  Buren  cause 
and  "throw  sand  in  the  eyes  of  the  present  administration 
and  its  true  advocates.'773  A  similar  communication  was 
received  by  Mr.  Woodbury  from  Samuel  McRoberts,  a  re- 
ceiver of  public  money.  He  warned  the  administration 
"that  the  president  and  nearly  all  of  the  directors  of  the 
principal  bank,  all  the  cashiers  of  the  branches,  and  an 
immense  majority  of  the  branch  directors  have  been  most 
decided  opposition  men  to  General  Jackson,  to  his  meas- 
ures, to  his  friends  and  supporters."  He  hoped  that  so 
long  as  the  bank  continued  in  the  hands  of  the  "federal 
party"  it  might  not  receive  the  patronage  of  the  govern- 
ment.74 One  cannot  get  the  least  inkling  from  Mr.  Wood- 
bury's replies  to  these  men  or  from  any  of  his  utterances 

71U.  S.,  H.  of  R.,  Special  Comm.  Report,  604. 

"Ibid.,  605  ff. 

"Ibid. 

74U.  S.,  H.  of  R.,  Special  Comm.  Report,  612. 


74  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [432 


in  connection  with  the  whole  affair  that  he  was  swayed 
by  political  considerations  but  without  giving  a  formal 
decision  against  the  state  bank,  he  early  developed  an  un- 
favorable attitude  toward  its  case.75 

As  the  heavy  drain  upon  the  bank's  specie  continued 
with  the  increased  land  entries,  the  directors  decided  to 
adopt  more  summary  measures  in  order  to  secure  the 
government  deposits.  Accordingly  they  sent  one  of  their 
number,  Mr.  John  Tillson,  to  Washington  to  wait  upon 
the  treasury  officials.  When  he  reached  New  York,  en 
route,  Mr.  Tillson  sought  to  pave  the  way  by  writing  to 
Keuben  M.  Whitney,  special  examiner  of  depositaries, 
asking  him  to  use  his  influence  with  his  chief,  Mr.  Wood- 
bury. He  promised  that  if  all  went  well,  Mr.  Whitney's 
firm  would  be  employed  as  the  Washington  representatives 
of  the  Illinois  state  bank  at  whatever  salary  it  was  cus- 
tomary for  a  western  bank  to  pay  for  such  a  service.76 
In  reply,  Mr.  Whitney  stated  very  frankly  that  the  depart- 
ment was  unfavorably  disposed  toward  the  bank  and  an- 
nounced his  intention  of  doing  all  in  his  power  to  prevent 
the  selection  of  such  an  institution  as  a  federal  depositary 
even  if  such  action  involved  the  loss  of  a  substantial  fee. 
Unlike  his  superior  officer,  Mr.  Whitney  did  not  hesitate 
to  bring  political  considerations  into  the  matter  by  de- 
claring that  an  institution  which  had  openly  worked  for 
the  election  of  its  friends  to  represent  the  Springfield  dis- 
trict in  the  legislature  was  unfit  to  handle  government 
funds.  Notwithstanding  this  rebuff,  Mr.  Tillson  proceeded 
to  Washington  and  presented  his  case  to  the  treasury 
officials.77 

In  a  letter  of  December  8,  1835,  addressed  to  Presi- 
dent Mather,  Mr.  Woodbury  furnished  the  officers  of  the 
bank  a  definite  list  of  charges  that  had  been  made  against 
it.78  The  first  of  these  was  that  the  stock  had  been  allotted 
illegally.    The  second,  that  the  bank  was  merely  posing 

7~>U.  S.,  H.  of  R.,  Special  Comm.  Report,  612,  613. 
7QIbid.,  102. 
77  Ibid.,  102. 
™Ibid.}  613. 


433]  BANKING  AND  INTERNAL  IMPROVEMENTS 


75 


as  a  state  bank  in  order  to  exist  in  contravention  of  the 
state  constitution.  The  third,  that  the  notes  issued  at 
one  branch  were  put  into  circulation  at  some  other  dis- 
tant branch  which  refused  to  redeem  them.79  To  these 
charges,  Mr.  Woodbury  added  the  personal  objection  that 
the  branches  at  Galena  and  Chicago,  the  only  places  where 
the  bank  could  be  of  much  service  to  the  government,  had 
not  been  placed  in  operation.  He  inclosed  a  blank  bond 
and  application  sheet,  however,  and  asked  that  they  be 
returned,  filled  out,  together  with  the  bank's  answers 
to  the  charges.  Mr.  Mather's  reply80  to  the  charges  is  a 
crude  attempt  at  evasion  and  subterfuge.  He  stated  that 
"the  distribution  of  the  stock  was  in  conformity  with  the 
provisions  of  the  charter — the  whole  of  it  being  assigned 
to  citizens  of  the  state  in  the  manner  defined  by  the  char- 
ter." He  admitted  that  the  state  did  not  own  a  dollar's 
worth  of  stock  in  the  bank  but  considered  that  it  still 
had  "an  interest"  in  the  bank  so  long  as  the  bank  was  re- 
quired to  pay  an  annual  tax  into  the  state  treasury.  He 
failed  to  see  how  any  person  could  consider  a  charter  un- 
constitutional which  had  received  the  unanimous  approval 
of  the  supreme  judges  sitting  as  members  of  the  council 
of  revision.  The  reply  of  Mr.  Mather  to  the  charge  that 
the  branches  were  refusing  to  redeem  one  another's  notes 
is  somewhat  vague.  He  admitted  that  separate  sets  of 
notes  were  ordered  for  each  branch  and  that  these  had 
just  been  received  from  the  printer,  but  he  did  not  promise 
that  the  notes  of  one  branch  would  be  redeemed  by  an- 
other. He  explained  further  that  until  they  had  received 
their  separate  issues  the  branches  had  been  issuing  the 
notes  of  the  parent  bank.  As  to  whether  the  branches 
ever  refused  to  redeem  this  temporary  issue,  Mr.  Mather 
replied  vaguely:  "Of  course,  the  bank  could  not  have 
refused  to  redeem  its  notes,  as  stated.  I  will  add,  that  all 
the  present  paper  issued  at  Alton  has  been  promptly  re- 

79The  Alton  branch  is  mentioned  in  particular.  Mr.  Woodbury  ob- 
tained this  information  from  T.  W.  Smith's  letter  of  November  first. 
Ibid.,  614. 

™Ibid.,  615. 


76  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [434 


deemed  there  whenever  presented."  In  closing,  Mr.  Mather 
assured  Mr.  Woodbury  that  the  Galena  and  Chicago 
branches  were  now  in  a  position  to  take  care  of  govern- 
ment deposits.  A  few  weeks  later,  Mr.  Woodbury  sub- 
mitted the  question  of  the  constitutionality  of  the  bank 
to  Attorney  General  Butler  and  was  given  the  opinion 
that  it  was  not  a  state  institution  and  therefore  its  whole 
existence  was  in  defiance  of  the  Illinois  constitution.81 

The  directors  of  the  bank,  realizing  the  futility  of 
further  effort,  formally  requested  Mr.  WToodbury  to  "sus- 
pend" the  application  of  the  bank  until  he  received  further 
notice.82  The  statement  of  Mr.  Whitney  in  his  letter  to 
Mr.  Tillson  that  the  bank  was  meddling  in  Illinois  politics 
aroused  the  anger  of  the  Illinois  Whigs.  As  a  result  the 
state  senate  in  January,  1836,  appointed  a  committee  of 
five  to  take  evidence,  first,  as  to  whether  the  control  of 
the  public  money  had  not  been  put  to  an  improper  use  by 
the  Jackson  administration  in  trying  to  force  local  banks 
to  support  Van  Buren ;  second,  as  to  whether  Mr.  Whitney, 
who  was  "now  stationed  near  the  treasury,"  was  not  hold- 
ing an  improper  correspondence  with  the  state  bank  offi- 
cials.83 The  committee  examined  the  correspondence  of 
the  bank  and  summoned  Colonel  Mather,  Judge  Smith, 
Samuel  Wiggins  and  others  to  testify,  but  aside  from  mak- 
ing "political  capital"  nothing  came  of  the  investiga- 
tion.84 In  August,  1836,  the  Shawneetown  bank  was 
made  a  special  depositary  for  the  public  money  collected 
at  the  Shawneetown  land  office85  and  for  a  time  had  the 
use  of  considerable  sums  of  money,  but  as  the  govern- 
ment land  sales  diminished  this  amount  on  deposit 
decreased  until  after  1836  a  nominal  deposit  of  only  forty 

81Sangamo  Journal,  May  13,  1842.  In  connection  with  the  question 
of  constitutionality,  it  is  interesting  to  note  that  Judge  Smith,  who  drew 
up  the  charter  and  fought  for  its  passage,  was  in  hearty  accord  with  the 
attorney  general's  opinion.    Ford,  History  of  IHinois,  179. 

82U.  S.,  H.  of  R.,  Special  Comm.  Report,  619. 

83Senate  Journal,  1835-36,  p.  259. 

^Missouri  Republican,  January  19,  1836. 

6*Sangamo  Journal,  August  27,  1836. 


435]-  BANKING  AND  INTERNAL  IMPROVEMENTS 


77 


dollars  was  kept  in  the  bank,  probably  as  a  sort  of  "retain- 
ing fee."86 

By  midsummer,  1836,  the  country-wide  wave  of  specu- 
lation in  land  and  town  lots  had  reached  Illinois.  Under 
its  influence  Chicago  grew  like  magic  from  a  mere  settle- 
ment to  a  city  of  several  thousand  inhabitants  and  became 
the  center  of  the  real  estate  business  of  the  adjoining 
states  and  territories.  It  was  in  Chicago  that  town 
site  speculators  exhibited  their  plats  and  auctioned  off 
their  lots.  Her  fame  spread  rapidly  through  the  East 
and  started  a  stream  of  immigration  by  way  of  the  Erie 
Canal  and  the  Great  Lakes.  The  mania  for  speculation 
spread  throughout  Illinois  with  the  result  that  the  inter- 
ests of  legitmate  business  were  everywhere  sacrificed  to 
the  desire  for  suddenly  acquired  riches.87  The  demand 
for  loans  at  the  state  bank  far  exceeded  its  accomoda- 
tions on  account  of  a  lack  of  specie.  Since  the  issuance 
of  the  specie  circular,  the  heavy  drain  on  the  bank's  cash 
reserves  by  land  purchasers  now  came  directly  from  the 
purchasers  themselves,  whereas  before  they  paid  with 
notes  of  the  bank  which  were  later  returned  by  the  de- 
positary bank  for  redemption.88  As  a  consequence  of 
this  condition,  the  bank  suspended  its  discount  business 
until  it  received  a  shipment  of  $280,000  in  gold  and  silver 
from  New  York  and  New  Orleans.89 

The  people  of  Illinois,  as  well  as  the  citizens  of  the 
older  states,  were  beginning  to  be  carried  away  with  the 
idea  that  improved  means  of  communication  must  be 
provided  regardless  of  the  cost.   In  Illinois  this  idea  was 

86Various  reports  of  the  bank  show  the  following  amounts  on  deposit 
by  the  United  States  treasurer : 


January,  1837   $81,414.69 

January,  1838    28,14247 

November,  1838   40.00 

November,  1839   40.00 

November,  1840   40.00 


and  so  on  until  the  bank  went  into  liquidation. 

87 Reports  of  Session  (Senate),  1839-40,  p.  5;  Ford,  History  of  Illinois, 

181. 

88Sangamo  Journal,  August  13,  1836. 

89Illinois  Register  (Vandalia),  November  4,  1836. 


78 


THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [436 


given  expression  through  the  press  and  in  mass  meetings 
in  the  principal  towns.  When  the  general  assembly  con- 
vened in  December,  1836,  an  internal  improvement  con- 
vention also  assembled  at  the  capital  for  the  purpose 
of  influencing  the  members  of  the  legislature  to  provide 
for  an  elaborate  system  of  railroads  and  waterways.90 
The  legislature  responded  most  liberally.  Instead  of 
merely  providing  for  the  completion  of  the  canal  between 
the  Illinois  River  and  the  Great  Lakes,  a  task  which 
alone  would  have  been  a  strain  upon  a  pioneer  com- 
munity, they  authorized  the  immediate  construction  by 
the  state  of  seven  railway  lines  and  the  dredging  of  all 
the  important  rivers.  As  an  anti-climax  to  the  whole  per- 
formance, the  sum  of  two  hundred  thousand  dollars  was 
voted  as  a  gift  to  those  counties  which  had  not  been 
given  a  line  of  railroad.91  In  order  to  carry  out  this  pro- 
gram the  legislature  authorized  a  loan  of  eight  millions, 
an  amount  eight  times  as  great  as  the  total  expenses  of 
the  state  government  from  its  inception  to  the  year  1836. 
The  next  problem,  however,  was  not  so  easily  solved: 
How  was  the  enormous  annual  interest  bill  to  be  met? 
The  people  were  already  as  heavily  burdened  with  taxes 
as  their  meager  resources  would  permit  and  no  legislator 
would  have  the  courage  to  face  his  angry  constituents 
after  proposing  or  voting  for  such  a  measure.  At  length 
it  occurred  to  the  framers  of  the  bill  that  the  banks 
could  be  made  a  part  of  the  internal  improvement  system. 
As  one  of  the  leading  journals  of  the  state  put  it:  "In 
connection  with  our  internal  improvement  system  it  is 
impossible  not  to  associate  the  banks  of  this  state — the 
interests  of  both  are  alike  and  rest  alike  upon  enlightened 
public  opinion.  One  is  the  hand-maid  of  the  other,  and 
since  the  internal  improvement  system  is  based  upon 
credit  it  cannot  be  carried  on  without  the  aid  of  banks."92 

90C.  M.  Thompson,  Governors'  Letter  Books,  ii,  Introduction,  li ;  see 
also  Douglas,  Autobiography,  in  Illinois  State  Historical  Society  Journal, 
October,  1912. 

91Laws  of  Illinois,  1836-37,  pp.  121,  131-133,  134-136. 

92Sangamo  Journal,  January  27,  1837. 


437]  BANKING  AND  INTERNAL  IMPROVEMENTS 


79 


During  the  eighteen  months  of  its  existence  the  state 
bank  had  declared  dividends  aggregating  seven  dollars 
and  seventy-five  cents  a  share,93  an  amount  equal  to  nine 
per  cent  on  the  paid  up  capital,  and  the  Bank  of  Illinois 
had  done  quite  as  well.94  It  seemed  plausible  to  the  mem- 
bers of  the  legislature,  therefore,  that  if  the  state  be- 
came the  owner  of  a  large  amount  of  profitable  bank 
stock,  the  financial  obligations  of  the  internal  improve- 
ment system  could  be  met  with  ease.  Accordingly 
there  was  inserted  in  the  internal  improvement  act 
the  following  provision:  "All  profits  arising  from  bank 
and  other  stocks  hereafter  to  be  subscribed  for  and  owned 
by  this  state,  after  liquidating  the  interest  on  loans  con- 
tracted for  the  purchase  of  such  bank  or  other  stock," 
should  be  devoted  to  the  payment  of  the  interest  on  the 
eight  millions  to  be  borrowed  for  internal  improvements.95 
Governor  Duncan  in  his  message  to  the  legislature96  had 
recommended  that  the  state  subscribe  only  for  the  one 
hundred  thousand  dollars'  worth  of  stock  reserved  for  it 
in  the  charter  of  the  state  bank,  but  the  legislature  was  not 
disposed  to  stop  at  this  modest  sum.  By  the  acts  of  March 
2  and  4,  1837,  not  only  was  the  one  hundred  thousand  dol- 
lars' worth  of  stock  subscribed  for,  but  the  capital  of 
$2,500,000  was  increased  to  $4,500,000,97  and  the  state  took 
the  whole  additional  issue  of  $2,000,000.98  At  the  same 
time  the  capital  stock  of  the  Bank  of  Illinois  was  increased 
from  $300,000  to  $1,700,000,  of  which  one  million  dollars' 
worth  was  to  be  subscribed  for  by  the  state.99 

In  order  to  provide  the  necessary  funds  for  the  pur- 
chase of  this  stock,  the  board  of  fund  commissioners,  a 

93Report  of  state  bank  investigating  committee,  1836-37,  p.  36. 
^Senate  Journal,  1836-37,  pp.  352  ff. 
95Lazvs  of  Illinois,  1836-37,  p.  137. 
"Senate  Journal,  1836-37,  p.  22. 

970nly  a  small  part  of  the  million  dollar  additional  issue  of  shares  of 
capital  stock  to  individuals  was  ever  paid  in,  so  the  total  capital  liability 
was  never  much  in  excess  of  $3,500,000.  Reports  of  Session  (Senate), 
1839-40,  p.  301. 

"Laws  of  Illinois,  1836-37,  p.  18. 

"Ibid.,  Section  6. 


80  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [438 


body  created  to  direct  the  financing  of  the  internal  im- 
provements, was  authorized  to  float  a  loan  of  not  more  than 
three  million  dollars.  There  were  to  be  issued  to  the  lend- 
ers shares  of  "Illinois  Bank  and  Internal  Improvement 
Stock/'  bearing  interest  at  not  more  than  six  per  cent,  and 
redeemable  by  the  state  at  any  time  after  I860.100  In  no 
case,  however,  could  these  bonds  be  sold  for  less  than  par. 
The  fund  commissioners  were  to  dispose  of  enough  bonds 
to  enable  them  with  the  aid  of  available  cash  in  the  treas- 
ury to  make  a  payment  to  the  two  banks  equal  to  those 
already  made  by  private  stockholders  on  their  shares.  To 
the  nine  directors  of  the  state  bank  were  added  five  state 
directors  elected  biennially  by  a  vote  of  the  two  houses  of 
the  general  assembly.101  This  arrangement  was  hardly  a 
fair  one,  however,  for  it  gave  to  the  state,  the  owner  of  a 
majority  of  the  shares,  a  minority  of  the  directorate.  In 
like  manner,  state  directors  were  added  to  the  board  of  the 
Shawneetown  bank  and  its  activities  were  enlarged  by 
providing  for  branches  at  Jacksonville,  Lawrenceville  and 
Alton,  and  authorizing  the  establishment  of  two  others.102 
The  bank  law  as  well  as  the  internal  improvement  act  pro- 
vided that  the  net  profits  arising  from  the  stock  must  be 
applied  to  the  interest  upon  internal  improvement  bonds. 
The  banks  were  made  the  depositaries  of  the  funds  accumu- 
lating from  the  sale  of  bonds  and  were  required  to  pay  to 
the  state  a  rate  of  interest  agreed  upon  by  both  parties. 
Moreover,  the  act  designated  the  banks  as  the  fiscal  agents 
of  the  state  as  long  as  quarterly  statements  of  their  condi- 
tion indicated  that  they  were  solvent.103 

The  original  charter  of  the  state  bank  permitted  the 
i   directors  to  borrow  any  sum  not  exceeding  a  million  dollars 
for  the  purpose  of  making  loans  on  real  estate.   The  legis- 


100Laws  of  Illinois,  1836-37,  p.  18,  Section  3. 
101Ibid.,  Section  8. 

102The  bank  of  Illinois  later  established  one  of  these  at  Pekin.  Laws 

of  Illinois,  1849,  p.  39. 

103Ibid.,  1836-37,  p.  18,  Sections  10,  12. 


439] 


BANKING  AND  INTERNAL  IMPROVEMENTS 


81 


lature  now  extended  this  privilege  to  the  Bank  of  Illinois, 
but  set  a  maximum  limit  of  $250,000.104 

The  legislature  still  contained  a  considerable  element 
hostile  to  banks  and  they  succeeded  in  carrying  a  resolution 
providing  for  the  investigation  of  the  state  bank's  affairs 
by  a  joint  committee  of  five.103  The  object  stated  in  the 
resolution  was  to  ascertain  whether  the  bank  had  violated 
any  of  the  provisions  of  its  charter  and  was  on  that  account 
not  a  fit  place  to  keep  the  state's  funds.  In  spite  of  the 
able  opposition  of  Abraham  Lincoln,106  who  contended  that 
such  an  investigation  was  an  unwarranted  intrusion  into 
the  affairs  of  what  was  still  a  private  institution,  the  resolu- 
tion was  adopted.  The  report  of  the  committee  declared 
that  the  bank's  management  was  free  from  all  questionable 
practices  and  declared  that  it  was  not  only  a  safe  place  to 
keep  funds,  but  that  its  shares  would  prove  a  good  invest- 
ment for  the  state. 

A  similar  investigation  of  the  Bank  of  Illinois  throws 
light  upon  the  general  policy  of  conducting  that  institution 
since  its  revival  in  1835.107  The  Bank  of  Illinois  had  not 
yet  become  a  state  institution  and  hence  could  have  pre- 
vented any  intrusion  into  its  private  affairs,  but  President 
Marshall  was  anxious  to  make  a  good  impression  and  placed 
all  the  bank's  records  at  the  disposal  of  the  committee,  not 
to  mention  a  bountiful  supply  of  whisky  and  "plenty  of 
sugar  to  sweeten  it."108  The  bank  was  found  to  be  owned 
and  managed  by  practically  the  same  men  who  had  it  in 
charge  during  its  brief  existence  some  years  before.  All 
the  directors  were  men  of  good  standing  in  southeastern 
Illinois,  most  of  them  having  lived  in  the  neighborhood  of 

104Laws  of  Illinois,  1836-37,  p.  17. 
105Senate  Journal,  1836-37,  p.  244. 

106Sangamo  Journal,  January  28,  1837.  Mr.  Lincoln  was  a  member  of 
the  lower  house,  having  been  elected  as  a  Whig  from  the  Springfield 
district.    He  was  a  staunch  friend  of  the  state  bank. 

107Senate  Journal,  1836-37,  p.  352.  For  complete  report  of  the  inves- 
tigation see,  also,  U.  S.,  Letter  of  Secy,  of  Treas.  on  State  Banks,  1838, 
pp.  778-783. 

108Ford,  History  of  Illinois,  197. 


82  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [440 

Shawneetown  for  over  twenty  years.109  They  had  been 
impartial  in  making  loans  and  discounts,  restricting  the 
latter  to  business  men.110  As  for  loans,  the  entire  business 
of  the  bank  was  confined  to  property  loans  in  southeastern 
Illinois.  The  principal  item  of  income  arose  from  the  pur- 
chase and  sale  of  bills  of  exchange.  The  southern  Illinois 
farmer  usually  shipped  his  grain  and  live  stock  down  the 
river  to  New  Orleans  and  drew  a  bill  of  exchange  on  the 
commission  man  in  that  city.  These  bills  were  sold  to  the 
bank  and  being  payable  at  short  dates  were  used  to  replen- 
ish its  stock  of  specie.  The  committee  found  a  reserve  of 
specie  on  hand  to  the  amount  of  $47,278,  and  a  few  days 
later  a  shipment  of  $23,300  arrived,  making  a  total  of 
$70,578  as  against  an  outstanding  circulation  of  $105,563 
and  deposits  to  the  amount  of  $110,000. 

The  committee  found  that  the  practice,  forbidden  by 
the  legislature  at  this  session,111  had  been  indulged  in  of 
issuing  bank  notes  payable  at  some  point  outside  the  state. 
Of  the  $105,563  in  bank  notes  then  outstanding,  $83,178 
had  been  issued  at  home,  $14,900  at  Philadelphia,  $2,825  at 
Louisville,  and  $4;660  at  New  Orleans.  The  bank  had  just 
redeemed  $8,500  of  the  Philadelphia  issue,  which  left  but 
I  $13,885  to  come  under  the  ban  of  the  new  law.  The  direc- 
tors gave  as  their  reason  for  this  foreign  issue  the  desire  to 
create  at  these  places  ample  funds  with  which  to  meet  the 
needs  of  Illinois  merchants  without  seriously  disturbing 
the  bank's  credits  created  by  the  shipment  of  grain  and  pro- 
visions. On  the  whole,  the  two  committees  seem  to  have 
had  grounds  for  their  laudatory  comments  on  the  manage- 
ment of  the  two  banks. 

With  the  entry  of  the  state  into  the  field  of  banking 
the  situation  was  completely  changed.  Illinois  had  received 
from  the  federal  government  $477,919.14  as  her  share  of 
the  surplus  revenue  distributed  among  the  states  in  1836.112 

109Senate  Journal,  1836-37,  p.  356. 
™Ibid.,  355. 

lxlLaws  of  Illinois,  1836-37,  p.  18. 

^Auditor's  Report,  Laws  of  Illinois,  1836-37,  p.  193. ' 


441]  BANKING  AND  INTERNAL  IMPROVEMENTS  83 

The  legislature  devoted  $335,592.32  of  this  sum  to  the  re- 
payment of  the  amounts  taken  from  the  school  fund  by 
their  predecessors  and  spent  the  rest  in  internal  improve- 
ments. Since,  however,  funds  were  needed  to  pay  for  a 
portion  of  the  state's  bank  stock  in  cash,  the  federal  money 
just  returned  to  the  school  fund  was  reborrowed  and  di- 
vided between  the  two  banks.113  As  soon  as  the  new  "Bank- 
ing and  Internal  Improvement"  bonds  were  ready,  the  com- 
missioners proceeded  to  New  York  to  offer  them  for  sale, 
in  order  that  the  balance  due  the  banks  for  the  state's  shares 
of  stock  might  be  met.  On  the  day  set  for  opening  the 
bids  for  the  bonds,  the  commissioners  were  chagrined  to 
find  that  not  a  single  offer  had  been  made.  The  act  forbade 
them  to  sell  the  bonds  at  less  than  par,  so  they  were  com- 
pelled to  abandon  their  efforts.  The  banks  were  now  so 
involved  in  the  state's  affairs  that  they  agreed  to  accept 
the  bonds  at  their  face  value  in  payment  of  the  remainder 
of  the  state's  stock;  the  state  bank  took  $1,765,000  worth 
and  the  Shawneetown  bank,  $900,000.  The  latter  bank 
afterwards  succeeded  in  disposing  of  its  share  but  those 
taken  over  by  the  state  bank  continued  to  burden  its  re- 
sources and  embarrass  its  operations  during  the  rest  of  its 
existence.114  The  banks  had  scarcely  begun  to  adjust  them- 
selves to  their  new  relationship  with  the  state  when  the 
panic  of  1837  burst  upon  the  country  and  left  ruin  every- 
where. 

Beginning  in  New  York  City,  the  first  week  in  May, 
the  suspension  of  specie  payments  by  the  banks  spread 
like  a  contagion  down  the  Middle  Atlantic  Coast  and  then 
to  the  West  and  South.115  By  the  twenty-second  of  May 
it  had  reached  the  St.  Louis  depositary  bank  and  a  week 
later  the  Illinois  banks  voted  to  suspend  for  an  indefinite 
period.116  In  so  doing  the  directors  of  the  state  bank  un- 
j  doubtedly  realized  that  the  legislature  would  not  demand 
the  winding  up  of  the  bank's  affairs  as  a  penalty  for  violat- 

113Senate  Journal,  1842-43,  p.  36. 
114Ford,  History  of  Illinois,  190. 
115Sangamo  Journal,  May  27,  1837. 

11QIbid.,  June  3,  1837;  Senate  Journal  (special  session),  1837,  p.  12. 


84  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [442 


ing  its  charter  by  suspending  specie  payment,  while  the 
charter  of  the  Shawneetown  bank  did  not  contain  such  a 
forfeiture  clause  at  all.  The  banks  and  the  state  were  now 
so  closely  associated  that  the  sudden  termination  of  the 
activities  of  either  of  them  would  result  in  indescribable 
chaos  in  the  state's  finances.  Thoroughly  alarmed  at  the 
possibility  of  such  a  contingency  in  the  case  of  the  state 
bank,  two  of  the  canal  commissioners  hastened  to  Jackson- 
ville in  search  of  the  governor.  They  finally  persuaded 
him  to  call  a  special  session  of  the  legislature  in  order  that 
legal  sanction  might  be  given  to  the  violation  of  the  bank's 
charter.  Accordingly  at  the  opening  of  the  special  session 
in  July,  1837,  a  memorial  was  presented  from  the  state 
bank  asking  that  the  penalty  of  forfeiture  be  suspended. 
The  legislature  acceded  to  the  request  and  authorized  the 
suspension  of  specie  payments  until  the  end  of  the  next 
J  general  assembly.  Certain  stipulations  were  imposed,  how- 
ever, the  chief  of  which  were:  (1)  No  dividend  could  be 
declared  until  the  bank  resumed  specie  payment;  (2)  No 
specie  could  be  disposed  of  in  any  way,  except  in  amounts 
of  five  dollars  or  less,  for  change;  (3)  A  monthly  statement 
of  the  bank's  condition  must  be  furnished  the  governor  and 
the  newspaper  owned  by  the  state  printer;  (4)  The  total 
issue  of  notes  during  suspension  must  not  exceed  the 
amount  of  capital  actually  paid  in;  (5)  The  state's  funds 
must  be  collected  and  disbursed  as  usual;  (6)  Relief  must 
be  granted  to  the  bank's  debtors  by  allowing  them  to  pay 
their  notes  in  instalments;  (7)  If  any  of  the  foregoing 
,  provisions  was  violated,  the  bank's  charter  was  ipso  facto 
liable  to  forfeiture.117 

A  brief  act  was  also  passed  at  the  special  session  au- 
thorizing the  state  to  sell  its  stock  in  the  banks  to  private 
individuals  if  funds  were  needed  to  meet  the  interest  on 
internal  improvement  loans.118  Notwithstanding  that  the 
crisis  now  made  their  extravagant  railroad  and  waterway 
program  impossible  of  fulfilment,  the  legislature  refused 

117 Laws  of  Illinois  (special  session),  1837,  p.  6. 
lislbid.,  5. 


443]  BANKING  AND  INTERNAL  IMPROVEMENTS 


85 


to  curtail  the  plans  in  any  way.  By  the  fall  of  1837,  hard 
times  set  in,  but  the  banks  were  powerless  to  furnish  aid  to 
tide  over  the  situation.  Instead,  the  discounting  of  notes 
was  reduced  to  a  minimum  and  suits  were  instituted 
against  delinquent  borrowers,  most  of  whom  were  business 
men.  They  in  turn  had  done  a  very  heavy  credit  business 
since  1835  and  were  compelled  to  force  the  farmers  and 
artisans  to  settle  with  them.119  This  caused  a  feeling  of 
resentment  against  the  banks  among  the  rank  and  file  of 
the  people. 

The  Whig  party  and  its  newspaper  organs  remained 
loyal  to  the  banks,  but  the  Democratic  journals  either  de- 
nounced all  banks  on  general  principles  or  favored  their 
establishment  on  an  absolutely  specie-paying  basis.120  Even 
Governor  Ewing,  who  had  been  instrumental  in  the  estab- 
lishment of  the  state  bank,  now  turned  against  banks  in  gen- 
eral and  his  former  pet  project  in  particular.121 

As  conditions  throughout  the  country  began  to  im- 
prove the  Illinois  banks,  after  a  suspension  of  over  thirteen 
months,  resumed  specie  payment,  August  13,  1838.122  In 
Governor  Duncan's  farewell  message  to  the  legislature  in 
December,  1838,  he  again  urged  in  vain  the  repeal  of  the 
whole  internal  improvement  system.  As  for  the  banks,  he 
commended  them  for  their  voluntary  resumption  and  for 
their  general  stability  displayed  during  the  crisis.  To  en- 
courage the  relief  of  the  multitude  of  poverty  stricken  land 
holders  he  suggested  that  the  state  furnish,  without  any 
responsibility  therefor,  to  any  person  lending  money  on 
Illinois  land  for  five  years  at  six  per  cent,  circulating  notes 
to  the  full  amount  of  the  principal,  to  be  secured  by  the  J 
mortgage  on  the  property,  the  lender  to  be  allowed  to  circu- 
late these  notes  freely  provided  he  redeemed  them  promptly 
in  specie.123    Instead  of  giving  serious  consideration  to  the 


119Memoirs  of  Gustave  Koerner,  429. 
120Sangamo  Journal,  August  19,  1837. 
*21Ibid.,  July  29,  1837. 
122Ibid.,  August  18,  1838. 
123House  Journal,  1838-39,  p.  14. 


86 


THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [444 


governor's  proposal,  the  legislature  made  more  secure  the 
monopoly  of  note  issue  enjoyed  by  the  banks,  by  passing 
the  act  of  December  4,  which  prohibited  persons  and  private 
institutions  from  issuing  notes.124 

Governor  Carlin  was  a  bank  hater,  and  in  his  inaugural 
address  took  the  reverse  of  his  predecessor's  position.125 
He  denounced  the  state  bank  in  particular  and  pointed  out 
four  dangerous  defects  in  the  existing  system:  (1)  There 
was  no  adequate  machinery  for  compelling  the  banks  to 
comply  with  their  charters ;  ( 2 )  They  were  allowed  to  med- 
dle in  politics  with  impunity;  (3)  The  state  bank  was 
lending  millions  to  a  few  speculators;  (4)  The  legislature 
did  not  use  the  means  it  had  of  compelling  the  banks  to  live 
up  to  the  letter  of  the  law.  While  he  deplored  the  fact 
that  such  an  elaborate  system  of  improvements  had  been 
inaugurated,  Mr.  Carlin  was  of  the  opinion  that  it  was 
too  late  to  turn  back  after  an  expenditure  of  ten  millions 
had  been  made.  The  legislature  heeded  his  advice  by  au- 
thorizing nearly  a  million  dollars'  worth  of  additional 
projects  rather  than  surrender  the  principle  of  state  con- 
struction of  public  improvements.126  In  addition  to  the  act 
forbidding  the  issue  of  notes  by  unauthorized  persons,  sev- 
eral other  minor  bank  laws  were  passed  at  this  session. 
The  first  of  these  was  known  as  the  foreign  small  note  act 
and  had  for  its  object  the  expulsion  from  the  state  of  all 
notes  of  less  than  five  dollars  denomination.  The  state  bank 
had  been  forbidden  by  its  charter  to  issue  notes  smaller 
than  five  dollars  and  the  Bank  of  Illinois  had  consistently 
followed  the  policy  of  not  doing  so,127  hence  the  public  had 
been  compelled  to  depend  for  its  small  notes  upon  the  issues 
of  the  Bank  of  Cairo  and  a  miscellaneous  assortment  of 
foreign  notes.  By  excluding  foreign  small  notes  a  monop- 
oly of  the  issue  of  ones,  twos  and  threes  was  given  to  the 
Bank  of  Cairo,  but,  as  will  be  seen,  this  privilege  was  later 


12iLaws  of  Illinois,  1838-39,  p.  80. 
125Senate  Journal,  1838-39,  p.  18. 
126Reports  of  Session  (Senate),  1839-40,  p.  5. 
127Senate  Journal,  1836-37,  pp.  354  ff. 


445]  BANKING  AND  INTERNAL  IMPROVEMENTS 


87 


exercised  also  by  the  Bank  of  Illinois  and  the  legislature 
finally  extended  it  to  the  state  bank.128  A  third  act  relating 
to  banks  was  passed  at  the  1838-39  session.  It  placed  the 
selection  of  the  state  directors  of  the  two  banks  in  the 
hands  of  the  governor,  instead  of  the  legislature.129 

The  federal  government  still  refused  to  establish  a  de- 
positary in  the  state,  hence  the  depositary  at  St.  Louis 
continued  to  receive  the  large  amount  of  land  money  col- 
lected from  Illinois  purchasers.  The  legislature  by  joint 
resolution  again  besought  the  secretary  of  the  treasury  to 
make  the  state  bank  a  federal  depositary  but  he  had  no 
funds  to  place  in  the  hands  of  the  Whigs.  The  official  rea- 
son given  was  that  the  banks  of  Illinois  did  not  conform 
to  the  federal  requirements  by  refraining  from  paying  small 
bills  to  their  patrons.130  The  secretary,  however,  found  it 
convenient  to  use  the  Chicago  branch  of  the  state  bank  and 
in  1839-40  had  nearly  fl50,000  on  deposit  there.131  The 
failure  to  secure  the  federal  deposits  was  a  hard  blow  to 
the  state  bank  and  its  excessive  issue  of  notes  soon  began  to  y 
depreciate. 

Meanwhile  the  temporary  revival  of  business  in  1838 
and  the  earily  part  of  1839  was  followed  by  a  second  crisis 
in  the  autumn  of  1839.  When  the  news  reached  Springfield, 
October  20,  that  the  banks  of  the  East  and  South  had  again 
suspended  specie  payment,  the  directors  of  the  state  bank 
Avere  called  together  and  again  decided  to  order  another 
suspension  in  spite  of  losing  their  charter  by  so  doing.  Mes- 
sengers were  despatched  to  every  branch  notifying  them 
to  suspend  at  once.132  The  news  spread  quickly  and  the 
next  morning  a  large  amount  of  notes  was  presented  at  the  / 
bank  for  redemption ;  but  the  directors  refused  to  pay  out 


128Laii>s  of  Illinois,  1838-39,  p.  79.  The  note  issues  of  the  Bank  of 
Cairo  will  be  taken  up  hereafter  in  connection  with  the  history  of  that 
institution. 

129 Ibid.,  234. 

lzoSangamo  Journal,  January  19,  1839. 
131Reports  of  Session  (Senate),  1839-40,  p.  310. 
132Niles'  Register,  lvii,  167. 


88  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [446 


any  specie.133  The  directors  of  the  Bank  of  Illinois  at  first 
decided  that  they  were  able  to  weather  the  storm,134  but 
after  making  the  attempt  for  two  weeks  they  followed  the 
example  of  the  state  bank.133 

The  alarming  condition  of  the  state's  finances  caused 
the  governor  to  convene  the  legislature  in  the  special  ses- 
sion of  1839-40.  The  credit  of  the  state  had  been  extended 
to  the  limit,  the  total  liabilities  aggregating  $11,107,919.44 
and  calling  for  an  annual  interest  payment  of  $637,800.136 
Furthermore,  to  provide  funds  to  complete  the  work  al- 
ready authorized  would  increase  the  amount  to  $21,846,- 
444.50.  Not  only  had  the  legislature  ordered  the  wTork 
over  the  whole  system  of  improvements  to  be  undertaken 
simultaneously  but  they  had,  as  has  been  noted,  enlarged 
the  scope  of  the  work.  The  governor  now  urged  that  only 
one  or  two  of  the  most  important  projects  be  continued. 
He  then  proceeded  to  criticize  the  state  bank;  first  for 
having  suspended  specie  payment  again;  second,  for 
utterly  disregarding  the  interests  of  the  state  and  the  gen- 
eral public  by  furthering  the  interests  of  a  few  speculators 
in  lead  and  pork.  He  therefore  recommended  that  no 
mercy  be  shown  the  bank  and  that  its  recent  operations  be 
subjected  to  a  most  searching  investigation.  The  attitude 
of  the  governor  and  the  legislature  seems  to  have  been 
more  friendly  toward  the  Bank  of  Illinois.137  Conse- 
quently they  were  content  to  let  that  institution  off  with  a 
demand  addressed  to  its  state  directors  for  an  explanation 
as  to  their  votes  in  favor  of  suspension.  The  defense 
offered  by  the  directors  was  that  the  interests  of  the  state 
demanded  that  the  bank's  specie  be  thus  protected  during 
country-wide  suspensions  of  specie  payment.  Furthermore, 
they  argued  that  the  constant  advances  to  the  state  had 
weakened  the  bank's  ability  to  withstand  a  drain  of  its 
gold  and  silver.   The  part  of  the  reply  that  was  calculated 

133S7.  Louis  Bulletin,  October  24,  1839. 

134 Shawnee town  Voice  and  Journal,  October  26,  1839. 

13tiReports  of  Session  (Senate),  1839-40,  p.  46. 

™«Ibid.,  3. 

ls'Ibid.,  12. 


447]  BANKING  AND  INTERNAL  IMPROVEMENTS 


89 


to  appeal  to  the  legislature  was  the  statement  that  if  the 
bank  must  continue  to  pay  out  specie,  it  must  curtail 
its  discounts  and  loans  to  such  an  extent  that  no  dividend 
could  be  paid  on  the  state's  million  dollars  worth  of  J 
stock.138 

With  regard  to  the  state  bank,  the  legislature  decided 
to  follow  Governor  Carlin's  advice  and  give  its  affairs  a 
thorough  airing  before  a  committee  of  the  two  houses. 
Although  the  majority  of  the  committee  appointed  favored 
the  bank  wherever  possible,  they  were  forced  to  acknow- 
ledge in  their  report  that  startling  abuses  had  crept  into 
its  management.  All  the  members  agreed  that  the  bank  had 
violated  its  charter  by  a  suspension  lasting  more  than 
sixty  days,  but  on  other  more  important  matters  the  dis- 
cord was  so  great  that  three  separate  reports  were  submit- 
ted to  the  legislature.139  A  number  of  persistent  rumors: 
about  the  bank  were  investigated  by  the  committee  and 
more  or  less  truth  was  found  in  them.  In  the  first  place, 
the  statement  that  money  was  loaned  to  non-residents  was  / 
found  to  be  correct  but  the  amount  had  been  greatly  exag- 
gerated, only  four  per  cent  of  the  loans  having  been  made 
to  persons  outside  of  the  state.  There  was  a  current  rumor 
that  Nevins,  Townsend,  and  Company,  the  bank's  eastern 
correspondents,  were  given  the  use  of  large  sums  without 
interest,  but  on  the  contrary  the  bank  was  found  to  have 
overdrawn  its  account  with  this  house  to  the  extent  of 
$150,000.  Considerable  suspicion  having  been  attached 
to  the  stockholdings  of  Samuel  Wiggins  of  Cincinnati,  the 
committee  made  a  careful  inquiry  as  to  the  character  of 
his  relations  with  the  bank.  They  found  that  of  the 
original  issue  of  $1,400,000,  Mr.  Wiggins  obtained  $193,100. 
He  had  paid  some  of  the  installments  when  called  for,  but 
in  October,  1835,  he  had  failed  to  respond  to  the  call  and 
was  compelled  to  ask  that  the  penalty  of  forfeiture  of  his 
stock  be  not  inflicted  for  sixty  days.  Contrary  to  the 
bank's  charter,  he  was  granted  a  loan  of  a  sufficient  amount 

138Reports  of  Session  (Senate)   1839-40  f  128. 
^Ibid.,  241  ff. 


90  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [448 


to  meet  the  call,  by  offering  $50,000  worth  of  his  stock 
as  collateral.140  The  bank  not  only  renewed  this  loan  from 
time  to  time,  but  in  addition  advanced  enough  money  to 
enable  Mr.  Wiggins  to  complete  the  payments  on  his 
f 193,100  worth  of  stock.  In  over  four  years,  he  had  repaid 
but  $18,500  of  the  $58,500  borrowed  but  had  continued  to 
draw  a  semi-annual  dividend  on  all  the  stock. 

In  addition  to  his  personal  holding,  it  will  be  remem- 
bered that  Mr.  Wiggins  was  a  member  of  a  syndicate  which 
agreed  to  purchase  all  the  second  issue  of  a  million  dol- 
lars left  unsold.  They  had  paid  eleven  dollars  on  each  of 
the  8,665  shares  and  were  receiving  a  proportional  share 
of  the  dividends  and  Mr.  Wiggins  had  a  correspondingly 
larger  voice  in  the  direction  of  the  bank's  management 
although  ineligible  to  a  place  in  the  directorate.  Aside 
from  the  accommodations  granted  to  Mr.  Wiggins,  the 
bank  had  confined  its  activities  very  largely  within  the 
state.  It  had  even  refrained  from  accepting  any  consider- 
able share  of  the  St.  Louis  patronage  which  would  have 
been  exceedingly  profitable  on  account  of  the  large  volume 
of  produce  which  was  transhipped  at  that  point.  But  this 
failure  to  accommodate  the  business  men  of  St.  Louis  was 
due  to  no  exalted  ideas  of  devotion  to  home  interests  but 
was  the  result  of  the  selfish  ambition  of  a  small  clique  of 
Alton  speculators  to  destroy  the  commercial  supremacy  of 
St.  Louis  and  to  amass  great  fortunes  for  themselves  by 
diverting  the  commerce  of  the  Mississippi  to  Alton.  As 
has  been  noted,  Godfrey,  Gilman  and  Company,  Alton 
commission  merchants,  had  a  large  portion  of  the  state 
bank  stock  under  their  control  and  unlike  the  other  influ- 
ential stockholders,  were  residents  of  the  state  and  eligible 
to  election  as  directors.  Accordingly,  Mr.  Gilman  had 
been  a  director  of  the  parent  bank  for  over  three  years  and 
Mr.  Godfrey  had  held  a  directorship  in  the  Alton  branch 
for  almost  as  long  a  time.  But  for  reasons  which  are 
about  to  be  revealed,  both  had  recently  resigned  their 
respective  offices.141 

140Reports  of  Session  (Senate),  1839-40,  p.  274. 
141  Ibid.,  289. 


449]  BANKING  AND  INTERNAL  IMPROVEMENTS 


91 


Since  the  prosperity  of  their  business  depended  upon 
the  development  of  Alton  at  the  expense  of  St.  Louis,  this 
firm  proceeded  to  enlist  the  state  bank  in  their  campaign 
to  make  Alton  the  commercial  emporium  of  the  Mississippi 
Valley.  Much  of  the  corn  and  pork  from  the  farms  of  the 
Middle  West,  as  well  as  the  lead  from  the  mines  at  Galena 
on  the  upper  Mississippi,  were  sold  to  St.  Louis  merchants 
and  transhipped  by  them  to  southern  or  eastern  markets, 
thus  creating  for  the  benefit  of  St.  Louis  brokers  a  large 
amount  of  credit  in  the  money  centers  of  the  country.142 
The  region  around  Galena  was  exporting  by  way  of  St. 
Louis  six  or  seven  hundred  thousand  dollars  worth  of  lead 
each  year,  the  greater  part  of  it  to  the  Atlantic  seaboard, 
and  the  directors  of  the  state  bank  were  allured  by  the 
prospect  of  becoming  the  possessors  of  the  large  amount  of 
credit  that  would  result  from  these  shipments.  Conse- 
quently, they  were  easily  persuaded  to  make  liberal  ad- 
vances to  the  Alton  lead  merchants,  especially  to  their 
fellow  directors,  Messrs.  Godfrey  and  Gilman.  In  fact,  the 
accommodations  to  this  one  firm  as  drawers,  discounters, 
and  endorsers  of  paper  amounted  to  $800,748.00143  before 
the  other  directors  came  to  their  senses  and  called  a  halt. 
The  larger  part  of  this  liability  had  been  created  by  the 
firm's  transactions  with  H.  H.  Gear,  a  Galena  lead  pro- 
ducer, who,  whenever  he  drew  bills  of  exchange  on  them  for 
shipments  of  lead,  promptly  sold  them  to  the  Galena 
branch  of  the  state  bank.  The  bank,  however,  was  not 
wholly  committed  to  the  interests  of  one  Alton  concern  for 
it  had  made  similar  advances  of  over  one  hundred  thousand 
dollars  to  the  firm  of  A.  G.  Sloo  and  Company.144  With 
such  generous  financial  backing  the  Alton  commission 
men  had  combined  for  the  purpose  of  raising  the  price  of 
lead  and  succeeded  in  a  short  time  in  raising  it  from  $2.75 
per  hundred  weight  to  $4.25.  In  their  efforts  to  corner  the 
supply  they  bought  with  a  free  hand,  but  soon  found  that 

142Reports  of  Session  (Senate),  1839-40,  p.  277. 
143Ibid.,  256. 

144Ibid.,  265;  Ford,  History  of  Illinois,  176. 


92  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [450 


they  were  unable  to  control  the  situation  in  the  eastern 
market,  which  was  supplied  by  scores  of  producers.145  By 
the  time  their  lead  reached  New  York,  the  market  had 
become  so  unsatisfactory  that  the  whole  large  shipment 
was  placed  in  the  warehouses  to  await  a  rise  in  price. 
Meanwhile  in  addition  to  their  speculations  on  the  lead 
market  itself,  Godfrey,  Gilman  and  Company  had  used 
several  hundred  thousand  dollars  of  the  bank's  money  in 
buying  up  mines  and  smelters  and  in  speculating  in  Galena 
town  lots.146  The  burden,  therefore,  finally  became  too 
great  and  they  and  their  fellow  speculators  were  compelled 
to  bring  their  lead  out  of  storage  and  sell  it  at  a  great 
sacrifice.  Sloo  and  Company  went  into  bankruptcy  and 
the  other  firms  were  practically  ruined.  Mr.  Gear  of 
Galena  was  compelled  by  the  directors  to  assume  a  large 
part  of  Godfrey,  Gilman  and  Company's  obligation,  thus 
reducing  that  firm's  liability  to  the  bank  to  |419,358.147 
The  attempt  to  make  Alton  a  great  metropolis  cost  the  bank 
nearly  a  million  dollars  and  brought  disaster  to  the  city's 
legitimate  business  interests.148 

The  connection  of  the  bank  with  speculation  in  Illinois 
produce  did  not  end  here,  for  it  came  dangerously 
near  to  the  point  of  speculating  in  lead  and  pork  on  its 
own  account.  In  its  eagerness  to  secure  credit  in  the 
East  the  bank  had  united  with  some  Galena  mine  owners 
in  employing  J.  G.  Lamb  of  Alton  as  their  joint  agent. 
According  to  the  arrangement  made  with  Mr.  Lamb,  these 
lead  producers  delivered  their  product  to  the  Galena  branch 
of  the  bank  and  were  paid  about  three-fourths  of  its  market 
value.  The  cashier  then  shipped  the  lead  to  Mr.  Lamb, 
who  in  turn  consigned  it  to  Nevins,  Townsend  and  Com- 
pany, the  bank's  New  York  correspondents.  When  the 
lead  was  sold  in  the  New  York  market,  Nevins,  Townsend 
and  Company  placed  the  proceeds  to  the  credit  of  the  state 


145Reports  of  Session  (Senate),  1839-40,  p.  277. 
146Ford,  History  of  Illinois,  176. 
147Reports  of  Session  (Senate),  1839-40,  p.  265. 
148Ford,  History  of  Illinois,  176. 


451]  BANKING  AND  INTERNAL  IMPROVEMENTS 


93 


bank.  The  bank  in  turn  deducted  the  interest  on  the 
money  paid  to  the  lead  producers  and  credited  Mr.  Lamb 
with  the  rest.  Mr.  Lamb  then  deducted  his  commission 
and  other  charges  and  sent  the  producer  a  check  for  the 
balance.  Thus  while  the  bank  cannot  be  said  to  have 
speculated  directly  in  lead  it  was  guilty  of  devoting  too 
large  a  share  of  its  resources  to  the  fostering  of  a  highly 
hazardous  undertaking.149 

The  cashier  and  clerk  of  the  Chicago  branch  also  dis- 
played a  lack  of  good  judgment,  to  say  the  least,  by  engag- 
ing in  pork  speculation  with  two  Chicago  commission  men. 
They  used  over  $26,000  of  the  bank's  funds  in  this  way  at 
a  time  when  accommodations  were  being  refused  the  legiti- 
mate enterprises  of  the  city.150 

Closely  related  to  the  inquiry  into  the  bank's  relations 
with  speculators  was  the  charge  that  all  the  directors  as 
well  as  members  of  the  legislature  had  received  a  dispropor- 
tionate amount  of  credit.  In  spite  of  the  fact  that  Messrs. 
Godfrey  and  Gilman  had  now  withdrawn  from  the  director- 
ate, it  was  found  that  $493,227.57  was  due  the  bank  from 
its  directors  and  the  firms  of  which  they  were  members. 
The  president  of  the  bank  urged  in  defense  of  the  practice 
of  favoring  the  directors  the  consideration  that  these  men 
gave  a  great  deal  of  valuable  time  to  the  bank's  business 
and  were  entitled  to  special  consideration  in  lieu  of  a  fixed 
salary.151  As  for  special  favors  being  shown  members  of 
the  legislature,  the  investigation  showed  that  twenty-one 
members  had  borrowed  over  $2,000  each,  but  that  their  total 
liabilities  reached  the  modest  sum  of  $50,394.26.152  The 
extent  to  which  the  bank  accommodated  the  different 
classes  of  borrowers,  however,  can  be  seen  from  the  fol- 
lowing table  in  which  debtors  are  divided  into  groups  ac- 
cording to  the  amount  of  their  obligations.153 


149Rcports  of  Session  (Senate),  1839-40,  pp.  311  ff.,  336. 
150Ibid.,  266,  331,  332.  * 
1*1Ibid.,  pp.  279,  287. 

152Ibid.,  307.  w 
133 1 bid.,  290. 


94 


THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [452 


Amount 
$200  or  less. 

$200-500   

$500-1000  .... 
$1000-3000  .. 
$3000-5000  .. 
Over  $5000 


Number  of  borrowers 


1875 
.1408 

■  713 

■  732 
.  172 


202 


Although  the  majority  report  of  the  committee  ex- 
pressed confidence  in  the  bank's  solvency,  in  spite  of  its 
reckless  advances  to  favorites,  an  analysis  of  the  official 
statement  of  the  institution  for  January,  1840,  reveals 
some  assets  of  a  very  questionable  value.154  For  example, 
the  first  item  under  "assets"  (discounts,  bills  of  exchange 
and  loans)  amounts  to  $3,937,584.75,  but  Dr.  Murphy  of 
Chicago,  a  member  of  the  committee,  in  his  separate  re- 
port, shows  that  at  least  $921,461.19  of  this  amount  should 
have  been  listed  as  a  suspended  debt.155  The  second  item 
in  the  "asset"  column,  "Illinois  State  Bonds,"  shows  that 
the  bank  had  not  been  able  to  dispose  of  the  $1,765,000  in 
state  bonds  received  in  part  payment  of  the  state's  shares, 
nor  the  $699,750  worth  of  canal  stock  unloaded  by  the  state 
upon  the  directors  of  the  bank.156  In  view  of  the  actual 
market  value  of  Illinois  securities,  the  bonds  should  have 
been  entered  at  about  half  their  face  value  instead  of  at 
par.  It  was  evident,  therefore,  that  if  the  bank  were  com- 
pelled to  forfeit  its  charter  because  of  its  recent  suspension 
of  specie  payment,  the  stockholders,  including  the  state, 
would  not  be  able  to  realize  the  full  amount  invested  in 
the  enterprise. 

The  legislature,  although  dominated  by  Democrats, 
many  of  them  hostile  to  banks,  decided  that  the  state's 
interests  demanded  a  further  postponement  of  the  penalty 
of  forfeiture.  By  the  act  of  January  31,  1840,  the  bank 
was  allowed  to  continue  the  suspension  of  specie  payments 
until  the  close  of  the  next  session  of  the  legislature.  The 
directors,  however,  were  required  to  bind  themselves  to  an 

^Reports  of  Session  (Senate),  1839-40,  348. 
155Ibid.,  p.  263. 
15QIbid.,  308. 


453] 


BANKING  AND  INTERNAL  IMPROVEMENTS 


95 


agreement:  (1)  To  make  no  more  loans  based  upon  the 
bank's  stock;  (2)  To  permit  any  person  holding  five  or 
more  shares  to  become  a  director;  (3)  To  limit  the  amount 
of  liabilities  of  any  one  person  to  $10,000  in  promissory 
notes  and  $25,000  in  bills  of  exchange;  (4)  To  choose  not 
less  than  three  new  directors  at  the  next  election  and  not 
less  than  two  new  members  at  each  succeeding  election ;  (5) 
To  accept  their  own  currency  for  all  claims  against  them. 
In  addition  to  these  stipulations,  the  restrictions  placed 
upon  the  bank  during  its  former  suspension  were  again  put 
into  force.157 

The  use  of  bank  funds  for  pork  speculation  by  officers 
of  the  Chicago  branch  furnished  an  opportunity  for  some 
of  the  legislators  to  "get  even"  with  the  cashier  of  the 
branch  by  securing  its  removal  from  Chicago  to  Lockport, 
a  village  about  forty  miles  away,  on  the  line  of  the  Illinois 
and  Michigan  Canal.158  During  its  existence  of  less  than 
four  years  the  Chicago  branch  had  been  a  factor  in  the 
rapid  development  of  that  city.  It  had  furnished  eastern 
exchange  at  from  one  to  two  per  cent  while  its  discounts 
of  business  paper  averaged  about  $500,000.  The  directors 
of  the  parent  bank,  however,  decided  to  obey  the  mandate 
of  the  legislature  and  in  July,  1840,  closed  the  branch.159 
Scarcely  had  a  beginning  been  made  in  the  new  location, 
however,  when  the  legislature  restored  the  branch  to  Chi- 
cago.160 On  the  whole,  the  most  commendable  piece  of  legis- 
lation enacted  at  the  special  session,  although  it  dealt  only 
indirectly  with  the  banks,  was  the  repeal  of  the  internal 
improvement  act  and  the  issuance  of  an  order  that  all  work 
be  indefinitely  suspended.161 

The  year  1840  witnessed  some  improvement  in  the  gen- 
eral situation  in  Illinois  but  the  banks  were  gradually 
falling  into  bad  repute.    Their  notes,  which  had  never 


157 Laws  of  Illinois,  1839-40,  p.  15. 
158Ibid. 

159Chicago  American,  August  7,  1840. 
160Laws  of  Illinois,  1840-41,  p.  40. 
1Q1Ibid.,  1839-40,  p.  93. 


96  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [454 


suffered  a  discount  of  more  than  two  or  three  per  cent,  were 
now  rated  by  brokers  at  ninety  cents  on  the  dollar.  Hence 
it  was  estimated  by  Congressman  Stuart  in  a  speech  in 
the  federal  house  of  representatives  that  the  bank  paper 
of  Illinois  was  costing  the  people  of  the  state  one  hundred 
and  sixty  thousand  dollars  a  year  in  higher  prices  for 
goods  bought  in  the  East  and  lower  prices  for  produce  sold 
there.162  A  number  of  Chicago  business  men  made  an  un- 
successful attempt  to  drive  Illinois  bank  paper  out  of 
circulation  in  that  city,  while  the  notes  were  dubbed  "bank 
rags"  by  the  newspapers.163 

Meanwhile  the  interest  bill  of  the  state  had  assumed 
such  alarming  proportions  that  Governor  Carlin  was  forced 
to  summon  the  legislature  to  meet  two  weeks  before  the 
regular  date  (December  7,  1840)  in  order  that  some  way 
might  be  devised  for  providing  the  needed  revenue.  There 
had  been  so  much  resentment  manifested  toward  previous 
legislatures  which  had  levied  additional  taxes  that  some  of 
the  members  favored  a  bill  providing  for  the  purchase  by 
the  state  of  three  millions  of  additional  bank  stock,  with 
the  expectation  that  the  dividends  on  the  $6,100,000  thus 
invested  would  not  only  pay  the  interest  on  the  money 
borrowed  to  buy  the  stock  but  would  suffice  for  the  pay- 
ment of  the  state's  entire  interest  bill.  In  support  of  the 
project  it  was  urged  that  the  unsatisfactory  condition  of 
the  banks  was  due  solely  to  a  lack  of  capital  and  if  this 
were  supplied,  dividends  would  probably  increase  at  once 
to  the  desired  amount.164  Governor  Carlin  was  bitterly 
opposed  to  this  plan  and  warned  the  legislature  against  all 
such  chimerical  schemes.165  The  matter  was  referred  to 
the  committee  on  banks,  which  presented  in  its  report  the 
following  vivid  picture  of  the  existing  situation  :166 

"Such  schemes  of  producing  wealth  as  the  multiplica- 
tion of  banks  and  paper  money  all  end  in  disaster.   Up  to 

1C2Quoted  by  the  Vandalia  Free  Press,  June  26,  1840. 
163Chicago  American,  October  9,  1840. 
^Reports  of  Session  (H.  of  R.),  1840-41,  p.  13. 
^Reports  of  Session  (Senate),  1840-41,  p.  3. 
™*Ibid.  (H.  of  R.),  14. 


455]  BANKING  AND  INTERNAL  IMPROVEMENTS  97 

1836-37,  when  their  capital  was  increased,  our  whole  debt 
was  only  $100,000.  Three  years  have  elapsed  and  what  is 
their  history?  Paper  money  multiplied,  foreign  debts  cre- 
ated, visionary  schemes  of  internal  improvement  com- 
menced and  abandoned — prodigality  abounding  in  every 
department,  until  we  find  ourselves  burdened  with  a  debt 
of  thirteen  millions.  The  payment  of  this  stock  at  the 
present  rate  of  our  bonds  would  involve  borrowing  four 
millions  to  pay  three.  Since  1837  the  dividends  have  been 
constantly  diminishing  until  we  find  them  for  the  last  year 
only  equal  to  the  interest  on  our  bonds.167  ....  The  banks 
have  been  in  operation  for  four  years  and  during  a  large 
portion  of  the  time  have  been  in  a  state  of  suspension.  .  .  . 
They  have  been  unable  to  handle  three  millions  rightly, 
then  why  give  them  three  more?" 

The  legislature  was  convinced  of  the  wisdom  of  this 
view  and  partially  met  the  situation  by  voting  an  increase 
of  taxes.  The  immediate  needs,  however,  had  to  be  met  in 
a  very  questionable  manner.  The  fund  commissioners 
being  unable  to  sell  the  state's  interest  bonds,  hypothecated 
$804,000  with  Macalister  and  Stebbins  of  Philadelphia  as 
security  for  a  loan  of  but  $321,600.  The  firm  remitted 
$261,500,  but,  according  to  Ford,  the  state  never  was  paid 
the  rest.168 

By  summoning  the  legislature  two  weeks  earlier  than 
the  time  fixed  by  the  constitution  Governor  Carlin  caused 
a  very  important  question  to  be  raised.  The  Democrats 
held  that  since  the  regular  session  could  not  lawfully  begin 
until  December  7,  the  session  called  by  the  governor  was 

187The  following  table  shows  the  fluctuation  in  the  semi-annual  divi- 
dend rate  in  the  case  of  both  banks.  Reports  of  Session  (Senate),  1840-41, 


State  Bank 

Bank  of  Illinois 

June,  1837   

 2]/2% 

not  given 

December,  1837   

 5 

not  given 

June,  1838   

 5 

not  given 

December,  1838   

 4 

zV2% 

June,  1839  

 4 

4 

December,  1839   

 3lA 

4 

June,  1840  

 3 

3 

'Ford,  History  of  Illinois,  198. 


98  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [456 


entirely  distinct  from  the  regular  session  and  must  be  ad- 
journed sine  die  on  the  preceding  legislative  day,  Decem- 
ber 5.  It  will  be  remembered  that  the  state  bank  was  re- 
quired by  the  recent  suspension  act  to  resume  at  the  close 
of  the  next  session  of  the  legislature,  but  the  directors 
naturally  supposed  that  there  were  several  months  in 
j  which  to  prepare  for  resumption  and  had  not  given  the 
matter  serious  consideration.  When  the  Whig  members 
realized  the  seriousness  of  the  bank's  situation,  they 
planned  to  absent  themselves  from  the  room  and  thus  break 
up  the  quorum  and  prevent  adjournment.  When  the  fifth 
of  December  arrived  they  proceeded  to  carry  out  their  plot, 
but  the  Democrats  grasped  the  situation  and  by  guarding 
the  doors  and  windows  until  a  motion  for  adjournment 
could  be  carried,  won  the  day  and  forced  the  bank  to  the 
choice  of  resumption  or  liquidation.169 

The  state  bank,  in  common  with  those  of  the  entire 
West  and  South,  had  originally  planned  to  resume  volun- 
tarily, January  15,  1841,  but  now  that  it  was  suddenly 
confronted  with  the  danger  of  losing  its  charter,  the  direc- 
tors hurriedly  voted  to  resume  at  once.170  In  order  to  for- 
tify itself  as  much  as  possible  in  its  single-handed  battle, 
the  bank  ceased  discounting  entirely  and  refrained  from  the 
issue  of  notes  as  far  as  possible.  As  a  somewhat  pardonable 
measure  of  revenge  upon  the  legislature,  it  was  ordered 
that  all  further  advances  to  the  state  should  cease.  The 
bank  had  been  very  liberal  in  allowing  the  state  to  over- 
draw its  account  to  the  extent  of  $196,000  and  the  directors 
estimated  that  at  the  present  rate  this  overdraft  would 
amount  to  about  $300,000  by  the  end  of  the  next  year.  In 
undertaking  to  resume  specie  payments,  the  bank  was  not 
only  compelled  to  cut  off  all  sources  of  profit  but  was  offer- 
ing several  cents  premium  for  specie,  hence  its  officers  felt 


169Letter  of  W.  Fithian  to  A.  Williams,  December  6,  1840,  in  Williams- 
Woodbury  Mss.;  Ford,  History  of  Illinois,  225;  Reports  of  Session  (Sen- 
ate), 1840-41,  p.  12. 

170Sangamo  Journal,  December  18,  1840. 


457]  BANKING  AND  INTERNAL  IMPROVEMENTS 


99 


no  compunctions  about  refusing  further  advances  to  the 
state.171 

The  directors  had  adopted  this  policy  of  resuming 
single-handed  with  the  firm  belief  that  the  other  banks 
would  live  up  to  their  agreement  to  resume,  January  15, 
but  as  that  day  drew  near  instead  of  specie,  only  excuses 
were  offered  to  note  holders  and  the  State  Bank  of  Illinois 
continued  to  fight  it  out  alone.172  On  January  25,  the  rep- 
resentatives of  the  banks  of  Kentucky,  Indiana,  Ohio  and 
Illinois  met  in  convention  at  Louisville  to  fix  another  date 
for  resumption,  but  failing  to  reach  a  decision,  they  ar- 
ranged for  a  second  meeting  at  some  distant  date.  The 
state  bank's  officials  came  home  thoroughly  discouraged, 
for  there  seemed  to  be  no  prospect  for  a  general  resumption 
within  the  next  six  months  or  possibly  a  year.  During  the 
bank's  own  brief  period  of  resumption  $455,000  in  specie 
had  been  withdrawn  by  note  holders  and  it  was  evident 
that  such  a  situation  could  not  long  continue.173  And  yet, 
on  the  other  hand,  the  surrender  of  the  charter  would  in- 
volve the  sale  of  the  state  bonds  at  an  enormous  loss  and 
the  collection  of  loans  at  a  time  when  the  borrowers  were 
unable  to  meet  their  obligations  in  full.  The  curtailment 
of  the  bank's  activities  and  the  contraction  of  the  currency 
by  the  retirement  of  the  $455,000  of  redeemed  notes  had 
already  caused  a  fall  in  prices,  and  made  the  lot  of  the 
debtor  increasingly  hard.  These  considerations  were  pre- 
sented by  the  directors  of  the  state  bank  to  the  legislature 
in  the  form  of  a  memorial,  in  which  was  also  incorporated 
a  request  for  further  authorization  of  the  suspension  of 
specie  payment.174 

In  the  interval  which  had  elapsed  since  the  legislature 
had  brought  about  the  humiliation  of  the  state  bank,  the 
members  had  occasion  to  pay  dearly  for  their  cruel  sport, 
for  as  soon  as  the  bank  had  been  compelled  to  resume,  it 


171Reports  of  Session  (Senate),  1840-41,  p.  14. 
172Chicago  American,  January  15,  1841. 
17SReports  of  Session  (Senate),  1840-41,  pp.  416  ff. 
17*Ibid. 


100         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [458 


stopped  cashing  their  salary  warrants  and  they  were  com- 
pelled to  dispose  of  them  at  half  their  value.175  Conse- 
quently, as  the  session  drew  near  its  close,  those  members 
who  had  been  so  eager  to  compel  a  strict  compliance  with 
the  law  were  now  disposed  to  show  mercy.  Accordingly, 
by  the  act  of  February  27, 1841,  the  banks  of  the  state  were 
]  declared  free  to  suspend  until  the  other  banks  of  the  South 
and  West  should  resume.  As  the  New  York  Evening  Post 
put  it,  athe  Illinois  legislature  has  authorized  the  sale  of 
indulgences."176  The  act  even  set  aside  any  forfeiture  that 
might  have  accrued  before  December  5,  1840.  In  addition 
to  the  long  list  of  restrictions  imposed  at  the  time  of  the 
last  suspension,  it  was  further  provided  that  the  interest 
on  loans  should  be  reduced  one  per  cent,  in  order  to  accom- 
modate the  more  impecunious  borrowers.  Until  January 
1, 1843,  the  state  bank  could  issue  one,  two  and  three  dollar 
notes,  but,  in  return  for  this  and  other  favors,  it  was  forced 
to  purchase  of  the  state  at  par  fifty  thousand  dollars'  worth 
of  six  per  cent  bonds  every  six  months  for  two  years.  The 
state  treasurer  was  specifically  instructed,  however,  not  to 
use  the  money  thus  obtained  for  paying  any  of  the  state's 
indebtedness  to  the  bank.  The  maximum  amount  for  which 
a  director,  or  any  firm  of  which  he  was  a  member,  could 
thereafter  become  liable,  was  reduced  to  $5,000.177 

Both  the  state  bank  and  the  Bank  of  Illinois  were  com- 
pelled to  give  bonds  as  surety  for  an  agreement  not  to  pay 
any  dividends  to  private  stockholders  during  suspension, 
but  they  were  both  required  to  declare  "to  the  full  amount" 
the  "just  and  proper  dividends  on  the  state's  stock."178 
Owing  to  a  slight  difference  in  the  wording  of  their  respect- 
ive charters,  the  Bank  of  Illinois  had  been  paying  a  capital 
stock  tax  on  all  its  paid  up  capital  while  the  state  bank 
paid  only  on  the  three-sevenths  of  its  capital  owned  by 
individuals.   The  inequality  was  remedied  in  the  "suspen- 

175Chicago  American,  December  18,  1840;  Ford,  History  of  Illinois, 

225. 

176Quoted  by  Sangamo  Journal,  April  2,  1841. 
177 Laws  of  Illinois,  1840-41,  p  40. 
178Ibid.,  p.  42. 


459]  BANKING  AND  INTERNAL  IMPROVEMENTS  101 

sion  act"  by  the  imposition  of  a  "bonus"  of  one-half  of  one 
per  cent  per  annum  on  all  the  state  shares  of  the  state 
bank.179  The  legislature  at  the  same  session,  authorized 
the  auditor,  treasurer  and  secretary  of  state  to  settle  with 
the  Bank  of  Illinois  for  generous  advances  made  by  it  to 
the  state  capitol  building  fund  and  the  internal  improve- 
ment account.  The  bank  was  given  the  warrant  of  the 
auditor  for  the  full  amount,  payable  after  1850,  with  inter- 
est at  six  per  cent.1 80 

The  state  bank  had  never  been  permitted  to  issue  notes 
of  a  less  denomination  than  five  dollars,  and  this  indulgence 
was  granted  now  in  the  belief  that  the  ones,  twos,  and 
threes  would  supply  the  place  filled  by  gold  and  silver  and 
thus  the  banks  would  soon  be  able  to  accumulate  a  sufficient 
amount  of  the  displaced  coins  to  warrant  early  resumption 
of  specie  payments.  But  instead  of  facilitating  resumption 
the  small  notes  had  the  opposite  effect  and  the  task  of  ac- 
cumulating specie  became  more  difficult  than  before.181  In- 
stead of  continuing  their  policy  of  retrenchment  the  officers 
of  the  state  bank  plunged  more  deeply  than  ever  into  finan- 
cial difficulties.  They  enlarged  its  circulation  and  pro- 
ceeded to  erect  a  costly  banking  house,  while  its  stock  was 
quoted  at  thirty-seven  cents  on  the  dollar  and  the  institu- 
tion itself  was  rated  in  New  York  as  utterly  insolvent.182 
In  spite  of  this  condition  of  affairs  the  directors  voted  them- 
selves, as  compensation  for  their  services,  the  use  of  four 
thousand  dollars  each,  without  interest.183  When  June  1 
arrived  the  directors  purchased  fifty  thousand  dollars- 
worth  of  state  bonds  as  required  by  the  suspension  act,  but 
were  unable  to  pay  any  dividends  on  state  stock.184 

So  long  as  the  Bank  of  Illinois  continued  under  the 
careful  management  of  John  Marshall  and  his  colleagues^ 


179 Session  Reports,  1840-41,  p.  186. 
180Laws  of  Illinois,  1840-41,  p.  39. 
181Ford,  History  of  Illinois,  226. 
182Chicago  Democrat,  September  14,  1841. 
183Sangamo  Journal,  November  19,  1841. 
184Ibid.,  July  23,  1841. 


102         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [460 


who  had  guided  the  bank's  affairs  in  the  old  territorial  days 
and  had  revived  its  charter  in  1834,  it  was  at  least  able  to 
bear  up  under  the  crushing  load  which  its  partnership  with 
the  state  had  thrust  upon  it.  Its  affairs,  however,  were 
becoming  badly  entangled  and  when  it  paid  the  semi-annual 
dividend  in  July,  its  resources  were  strained  to  the  ut- 
most.185 Although  the  directors  had  suspended  specie  pay- 
ments whenever  the  other  banks  of  the  West  had  taken 
such  action,  they  did  so  with  impunity,  for  they  were  not 
liable  to  forfeiture  of  their  charter.  But  at  length  the 
anti-Marshall  faction  among  the  stockholders,  defeated  in 
their  effort  to  oust  the  officers  of  the  bank  and  to  place 
J.  C.  Stickney  at  the  head  of  affairs,  instituted  quo  war- 
ranto proceedings  based  upon  the  plea  that  the  charter  of 
the  bank  was  unconstitutional.  As  was  noted  in  an  earlier 
part  of  this  discussion,  the  court  decided  in  favor  of  the 
bank's  charter.186  At  the  annual  election  of  officers,  Janu- 
ary 2, 1843,  Mr.  Marshall  declined  election  as  president  and 
the  bank's  policy  was  soon  changed  to  one  of  getting  all 
that  was  possible  out  of  a  doomed  enterprise  before  it 
should  go  to  pieces.  In  their  effort  to  carry  out  this  policy 
the  directors  even  attempted  to  defraud  the  state,  as  will 
be  seen  in  connection  with  the  settlement  of  the  bank's 
affairs. 

In  spite  of  the  ever  increasing  evils  of  state  banking, 
the  Illinois  Whigs  continued  in  their  loyalty  and  argued 
that  all  that  was  needed  to  remedy  the  situation  was  an- 
other national  bank  to  act  as  a  regulator  of  the  state  insti- 
tutions.187 The  opposition  of  the  Democrats  was  consid- 
ered by  the  Whigs  as  disloyalty  to  the  country's  institu- 
|  tions.  On  the  other  hand,  "the  Whigs  in  the  estimation  of 
the  Democrats  were  a  set  of  bank  vassals,  and  were  fre- 
quently called  by  the  Democrats  'the  ragocracy.'  The  presi- 


185Sanganw  Journal,  July  23,  1841. 

186Ibid.,  January  21,  1841.  Decision  of  the  supreme  court  is  found  in 
I  Gilm.  672. 

187Ibid.,  November  12,  1841. 


461]  BANKING  AND  INTERNAL  IMPROVEMENTS 


103 


dents  and  directors  of  the  bank  were  called  'rag  barons/ 
bank  paper  was  called  'bank  rags,'  and  'written'  or  'printed 
lies.'  "18S 

Now  that  the  state  had  finally  abandoned  the  various 
internal  improvement  projects,  several  of  the  directors  of 
the  bank  became  interested  in  a  proposition  to  take  over 
the  Northern  Cross  Railroad,  which  was  the  most 
promising  of  the  projected  lines  of  railway.  Accordingly, 
they  entered  into  an  agreement  to  complete  the  line  for 
the  state  and  to  receive  payment  in  Illinois  and  Michigan 
Canal  bonds.189  These  same  directors  with  the  aid  of  their 
fellows  had  made  a  rule  that  the  bank  should  not  expand 
its  issue  of  paper  during  the  suspension  of  specie  payments, 
but  now  they  proceeded  to  disregard  the  bank's  condition 
and  voted  themselves  and  their  business  partners  generous 
loans  for  building  the  railroad.  When  a  beginning  had 
been  made  it  was  easy  to  continue  and  even  the  state  came 
in  for  an  advance  to  piece  out  her  insufficient  revenues.190 
Finally  in  February,  1842,  the  directors  announced  that 
the  bank  had  been  compelled  to  suspend  all  its  operations 
for  an  indefinite  period.  This  announcement  was  followed 
by  the  rapid  depreciation  of  its  paper.  By  March  25,  the 
notes  had  fallen  in  value  from  eighty-five  cents  to  fifty,191 
while  in  April  they  were  quoted  at  forty-four  cents.192  In 
May  the  directors  discontinued  the  Chicago,  Danville  and 
Jacksonville  branches  and  moved  their  specie  to  the  parent 
bank.  Instead  of  resumption,  everything  now  pointed  to 
liquidation.193  It  was  confidently  expected  that  the  Bank 
of  Illinois  would  be  in  a  position  to  resume  specie  pay- 
ments in  June  along  with  the  other  western  banks,  but 


188Ford,  History  of  Illinois,  227.    See,  also,  article  from  Belleville 
Representative  copied  in  Sangamo  Journal,  February  16,  1839. 
189Ford,  History  of  Illinois,  227. 
190 1 bid.,  223. 

191Sangamo  Journal,  March  25,  1842. 
™2Ibid.,  April  8,  1842. 
193Ibid.,  May  13,  1842. 


104         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [462 

when  the  day  agreed  upon  arrived  the  directors  announced 
that  they  had  been  compelled  to  follow  the  state  bank's 
example  and  had  therefore  ordered  an  indefinite  cessation 
of  the  bank's  activities.194 

During  the  year  ending  June  30,  1842,  one  hundred 
and  fifty-two  other  banks  in  the  United  States  had  closed 
their  doors  and  the  rest  had  greatly  reduced  their  circula- 
tion in  preparation  for  the  resumption  of  specie  payments. 
This  had  led  the  people  of  the  State  of  Illinois  to  rely  all 
the  more  upon  the  issues  of  the  Illinois  banks  until  they 
too  suspended  operations  and  their  paper  became  thor- 
oughly discredited.195  Moreover,  specie  to  the  amount  of 
$798,998.69  lay  inaccessible  in  their  vaults.  Large  amounts 
of  their  notes  were  being  accumulated  by  speculators  from 
the  easily  frightened  countrymen,190  so  that  by  December, 
1842,  there  was  not  enough  money  in  circulation  to  carry 
on  the  business  of  the  community  and  resort  was  had  to 
payment  in  kind.197  For  the  first  time  the  governor,  auditor 
and  treasurer  made  use  of  the  provision  in  the  act  of  Janu- 
ary 16,  1836,  which  authorized  them  at  any  time  to  publish 
a  proclamation  forbidding  the  acceptance  of  state  bank 
paper  in  payment  of  public  dues.  Collectors  were  further 
warned  not  to  take  the  notes  of  the  Shawneetown  bank  at 
more  than  their  current  value. 

At  this  point,  which  marks  the  close  of  their  active 
existence,  the  writer  has  brought  together  a  sufficient  num- 
ber of  the  statements  made  by  the  two  banks  to  the  legisla- 
ture to  indicate:  (1)  The  general  character  of  their  opera- 
tions during  the  whole  period  of  their  activity;  and  (2) 
the  specific  changes  of  policy  that  occurred  from  year  to 
year.  The  following  table  shows  the  balance  sheet  of  the 
state  bank  for  the  dates  indicated : 


194Goodspeed,  pub.,  History  of  Gallatin,  etc.,  Counties,  ioo. 
195Senate  Journal,  1842-43,  p.  20. 
196 1 bid.,  43. 
™7Ibid.,  18,  19. 


463] 


BANKING  AND  INTERNAL  IMPROVEMENTS 


105 


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106         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [464 


The  first  statement  was  made  just  three  months  after 
the  bank  began  business  as  a  private  institution.  The 
items  in  the  balance  sheet  reveal  the  sources  of  the  funds 
with  which  the  bank  carried  on  its  earlier  operations  as 
well  as  the  character  of  the  accommodations  extended  to 
borrowers.  Subscribers  to  the  $1,400,000  capital  stock 
had  made  payments  to  the  amount  of  $278,739.11  in  "specie 
or  its  equivalent."  Judging  from  the  large  amount  of 
specie  on  hand  payments  must  have  been  made  generally 
through  that  medium  or  with  funds  readily  convertible  into 
specie.  The  $209,396.30  due  from  other  banks  is  almost 
entirely  offset  by  the  item,  "real  estate  fund,  $200,000." 
The  bank  had  recently  borrowed  this  amount  in  the  East 
for  the  purpose  of  reloaning  it  on  real  estate,  and  the  money 
was  still  on  deposit  in  a  New  York  bank.198  Individual 
deposits  form  a  larger  percentage  of  total  liabilities  than 
at  any  subsequent  report.  The  bank  had  but  a  small  supply 
of  notes  at  this  time  on  account  of  a  delay  in  the  shipment 
of  the  separate  issues  provided  for  each  of  the  branches.199 

Since  the  real  estate  fund  was  not  yet  available, 
scarcely  any  loans  had  been  made  on  real  estate,  the  busi- 
ness being  confined  to  the  purchase  of  bills  of  exchange  and 
the  discounting  of  promissory  notes. 

By  January,  1837,  the  date  of  the  next  statement  given 
in  the  above  table,  a  great  change  had  occurred.  Almost 
all  the  capital  stock  had  been  paid  for  and  an  additional 
sum  of  $350,000  had  been  borrowed  to  re-lend  on  real  estate 
security.  The  specie  reserve  had  been  increased  225  per 
cent,  while  the  note  issue  had  been  expanded  to  seven  times 
the  amount  outstanding  in  1835.  The  bank  as  the  deposi- 
tary for  state  funds  had  on  hand  $298,799.58  of  the  pro- 
ceeds from  the  sale  of  Illinois  and  Michigan  Canal  bonds, 
in  addition  to  individual  deposits  of  $475,265.63.  The  con- 
stant drafts  on  the  canal  funds,  however,  made  that  item 
of  little  benefit  to  the  bank.    The  large  circulation  out- 


198U.  S.,  H.  of  R.,  24  Cong.,  2  Sess.,  Doc.  no.  193,  p.  603. 
1Q9Ibid.f  615. 


465]  BANKING  AND  INTERNAL  IMPROVEMENTS 


107 


standing  indicates  that  most  of  the  loans  and  discounts 
were  received  in  the  form  of  the  bank's  notes.  The  year 
1836  had  been  marked  by  a  great  demand  for  accommoda- 
tion on  the  part  of  land  speculators  and  the  bank  had  ex- 
panded its  loans  very  rapidly ;  in  fact,  but  a  few  weeks  be- 
fore this  statement  was  made  it  had  been  compelled  to 
suspend  its  discount  business  until  it  could  receive  a  ship- 
ment of  |280,000  in  specie  from  New  York  and  New  Or- 
leans. At  this  period  the  purchase  of  bills  of  exchange 
arising  from  sales  of  produce  in  the  South  and  East  formed 
a  large  part  of  the  bank's  business,  for  the  reason  that  the 
bills  were  readily  converted  into  specie  while  the  ordinary 
loans  or  discounts  at  this  period  were  considered  as  "slow" 
assets.200  The  connection  of  the  bank  with  the  lead  and 
pork  speculation  accounts  for  a  large  amount  of  the  out- 
standing accommodations.201 

At  the  time  of  the  next  report  recorded  in  the  table, 
the  volume  of  the  bank's  business  had  reached  the  maxi- 
mum point.  The  individual  stockholders  had  paid  in  the 
full  amount  of  the  first  stock  issue  of  f 1,400,000  and  had 
to  their  credit  $144,655  on  the  second  issue  of  one  mil- 
lion dollars.  In  the  meantime  the  state  had  received  its 
$2,100,000  in  shares,  making  the  total  paid  up  capital 
$3,644,655.00.  However,  instead  of  paying  in  cash  for  its 
shares,  the  state  had  turned  over  to  the  bank  $1,765,000  in 
bonds.  The  bank  had  also  been  practically  compelled  to 
buy  $700,000  worth  of  canal  bonds  and  about  $300,000 
worth  of  other  state  securities,  in  order  to  retain  the  good 
will  of  the  legislature.  Thus  $2,763,750.00  of  the  bank's 
resources  were  tied  up  in  securities  of  questionable  value 
and  $28,748.73  more  had  been  advanced  without  interest 
in  order  to  help  make  up  the  deficit  in  the  current  expenses 
of  the  state  government.202  The  proceeds  of  a  recent  sale 
of  internal  improvement  bonds  had  been  deposited  with 


200Special  Report,  Investigating  Committee,  1836-37,  p.  40. 
^Reports  of  Session  (Senate),  1839-40,  pp.  266,  331,  332,  et  passim. 
202Ibid.,  p.  263. 


108         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [466 


the  bank  by  the  fund  commissioners  and  had  increased  the 
total  deposits  to  over  a  million  dollars;  but  the  deposit 
items  were  soon  reduced  to  their  normal  amount  and  as  the 
difficulties  of  the  bank  increased,  rapidly  disappeared.  The 
circulation  of  the  bank  had  more  than  doubled,  but  the  re- 
serve had  increased  but  twenty-five  per  cent  and  was  equal 
to  but  thirteen  per  cent  of  the  liabilities  other  than  capital 
stock.  The  heavy  drafts  made  upon  the  bank  by  the  state 
enabled  it  to  turn  to  a  profitable  use  but  $3,700,000  out  of 
its  total  resources  of  $8,900,000.  The  reckless  advances 
made  to  favorites  had  increased  the  discount  item  to  the 
amount  of  $3,287,770.60,  but  almost  a  million  dollars  of 
this  amount  was  pronounced  worthless  by  Doctor  Murphy 
of  the  legislative  investigating  committee.203 

The  report  for  November  16,  1840,  shows  a  marked 
decline  in  the  general  activities  of  the  state  bank.  But 
$1,470  had  been  paid  in  by  private  stockholders,  making  a 
total  of  $146,125  paid  in  on  the  million  dollars  stock  issue 
to  individuals.  The  amount  loaned  on  real  estate  had  been 
reduced  and  one  hundred  thousand  dollars  returned  to  the 
original  holders  of  the  fund.  A  surplus  of  $90,000  had  been 
accumulated  for  emergencies  but  the  deposits  of  over  a 
million  dollars  had  shrunk  to  $107,000.  In  the  face  of  un- 
favorable conditions  the  note  issue  had  been  increased 
while  the  reserve  had  decreased  more  than  twenty-three 
per  cent.  In  their  efforts  to  protect  the  bank  from  loss 
the  bank  officials  were  compelled  to  bid  in  at  judgment 
sales  large  amounts  of  property  which  they  had  accepted 
as  security  for  loans.  As  may  be  seen  from  the  "real  estate" 
item,  nearly  half  a  million  dollars  was  tied  up  in  this  way. 
The  items,  "Illinois  securities,  $2,101,899.59,"  and  "Ad- 
vances to  the  state,  $243,397.07,"  indicate  what  a  crushing 
load  the  partnership  had  placed  upon  the  bank's  resources. 
The  first  amount  indicates  that  the  bank  had  been  able  to 
dispose  of  $600,000  worth  of  bonds,  probably  at  a  heavy 
discount.  The  second  shows  the  severe  drain  that  was  being 

203Reports  of  Session,  (Senate),  1839-40,  p.  263. 


467]  BANKING  AND  INTERNAL  IMPROVEMENTS  109 

made  upon  the  bank  to  meet  the  state's  current  obligations, 
|193,300.65  of  it  being  for  the  ordinary  expenses  of  govern- 
ment while  the  remaining  $50,096.42  represents  advances 
for  labor  and  material  employed  in  the  internal  improve- 
ment projects. 

The  decrease  of  fifty  per  cent  in  discounts  and  bills  of 
exchange  purchased  as  well  as  the  accumulation  of  large 
amounts  in  eastern  banks  and  listed  in  the  statement  as  a 
part  of  the  "$797,278.16  due  from  other  banks"  shows  that 
the  bank  was  preparing  to  resume  specie  payment  along 
with  the  other  banks  of  the  West  and  South.204 

By  the  time  the  next  report  was  made,  the  bank  was 
hopelessly  insolvent.  It  had  practically  suspended  all  op- 
erations but  the  settlement  of  outstanding  accounts. 
$568,742.22  of  the  discounts  were  listed  on  the  bank's  books 
as  "suspended  debt"  and  much  of  the  remaining  $826,344.85 
as  well  as  the  loans  on  real  estate  later  proved  to  be  worth- 
less. Through  the  foreclosure  of  mortgages  it  had  come 
into  possession  of  over  a  million  dollars'  worth  of  land,  but, 
as  will  be  seen,  only  a  small  part  of  this  amount  was 
ever  realized.  Some  of  the  bonds  had  been  sold  but  the 
state  had  continued  to  demand  advances  for  current  ex- 
penses until  $448,869.59  was  due  the  bank.  The  bank  had 
suspended  its  operations  since  February,  1842,  and  its  sup- 
ply of  specie  remained  intact.  During  the  preceding  period 
of  enforced  resumption  it  had  redeemed  a  large  amount  of 
its  paper  but  there  was  still  almost  a  million  and  a  half 
outstanding.  The  large  amount  of  undivided  profits  is  due 
to  the  fact  that  the  bank  had  been  forbidden  by  the  legis- 
lature to  declare  dividends  during  a  suspension  of  specie 
payments.  The  bank  c-untinued  in  a  dormant  condition 
until  February,  1843,  when  it  went  into  liquidation  under 
conditions  which  will  be  considered  presently. 


^Reports  of  Session,  1840-1,  14. 


110         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [468 


The  following  table  shows  the  condition  of  the  Bank 
of  Illinois  at  various  periods : 

Aug.  5, 1837    Dec.  1, 1838    Nov.  2, 1840    Nov.  12, 1842 
Loans  and  discounts..$243,3i8.3i    $1,005,568.84   $1,339,215.00  $1,170,619.87 


Bills  of  exchange   15,444.76        78,850.61  270,738.40  201,843.76 

Suspended  debts    28,313.41  133,869.59 

Advances  to  fund 

commissioners   240,037.04 

Advances  for  state 

house    84,197.00 

Illinois  securities    500,000.00  25,280.96  370,818.84 

Insurance  stock    1,500.00  11,200.00 

Due  from  banks   41,727-93       517,121.58  308,539.63  44,85348 

Real  estate    975-00        11,331.91  62,426.95  98,661.24 

Incidental  expenses....  29.25        28,874.95  6,566.67  6,892.05 

Specie    158,610.34       306,708.05  413,255.38  307,040.47 

Notes  of  other  banks  45,450.00        82,772.00  63,147.00  2,605.00 

Other  assets   11,982.22 

Total    2,531,227.54  2,843,217.44  2,360,386.02 

Capital   1,288,400.00  1,342,740.00  1,349,240.00 

Circulation    64,846.00       712,204.00  1,262,414.00  757,848.00 

United  States  de- 
posits   39,79590             40.00  40.00  40.00 

Unclaimed  dividend....  404.00  707.44  1,908.00 

Individual  deposits   121,238.80        74,998.60  90,552.30  88,634.69 

Due  to  banks   108,665.62  31,211.41  11,684.15 

Branch  balances    15,533-35 

Undivided  profits    32,029.53  32,838.97  24,092.89 

Surplus  fund   4,489.52  67,179,97  126,938.29 


The  statement  for  August  5,  1837,  shows  the  condition 
of  the  bank  shortly  before  its  transformation  from  a  pri- 
vate into  a  quasi-state  institution  and  its  consequent  en- 
tanglement  in  the  state's  disordered  finances.  The  bank  at 
that  time  enjoyed  an  excellent  reputation  and  its  balance 
sheet  shows  that  its  creditors  were  well  protected.205  As 
special  depositary  for  the  receipts  of  the  land  office  at 
Shawneetown  it  was  subjected  to  the  supervision  of  the 
secretary  of  the  treasury.  As  has  been  indicated  in  another 

205Senate  Journal,  1836-37,  p.  352;  U.  S.,  Letter  of  the  Secy,  of  the 
Treas.  on  State  Banks,  1838,  pp.  778-83. 


469]  BANKING  AND  INTERNAL  IMPROVEMENTS 


111 


connection,  the  bank  as  a  private  institution  performed  a 
useful  service  in  southeastern  Illinois,  confining  its  accom- 
modations to  lending  on  local  real  estate,  discounting  com- 
mercial paper  and  purchasing  bills  of  exchange  from 
commission  men  who  had  sold  grain  and  live  stock  "down 
the  river."206 

Before  the  next  report  listed  in  the  above  table  ap- 
peared, the  state  had  subscribed  for  a  million  dollars' 
worth  of  the  bank's  stock,  paying  $100,000  in  cash  and  the 
rest  in  bonds.  At  the  time  of  the  report,  December  1,  1838, 
the  bank  had  disposed  of  $400,000  worth  of  the  bonds.207 
It  will  be  seen  that  the  partnership  with  the  state  brought 
about  a  radical  change  in  the  bank's  condition.  The  federal 
government  had  withdrawn  its  deposits  with  the  exception 
of  the  nominal  sum  of  forty  dollars.  The  deposits  of  indi- 
viduals had  decreased  forty  per  cent  but  the  fund  commis- 
sioners had  placed  in  the  bank  proceeds  from  the  sale  of 
bonds  to  the  amount  of  $309,996.27.  Under  the  new  regime 
individual  deposits  ceased  to  play  an  important  part  in 
the  bank's  affairs  while  the  deposits  made  by  various  state 
officials  never  remained  in  the  bank's  keeping  for  any  length 
of  time.  The  large  amount  ($517,121.58)  due  from  banks 
may  be  accounted  for  by  the  fact  that  the  bank  was  now 
the  fiscal  agent  of  the  state  and  was  concerned  in  the  trans- 
fer of  funds  for  the  prosecution  of  the  internal  improve- 
ment enterprises.  The  bank  no  longer  confined  its  opera- 
tions to  southeastern  Illinois,  but  with  its  branches  in  sev- 
eral important  business  centers  its  activities  covered  a 
large  part  of  the  state.  In  this  way  the  great  increase 
in  the  volume  of  loans,  discounts  and  bills  of  exchange,  as 
well  as  the  greatly  expanded  note  issue,  may  be  explained. 

The  report  of  November  2,  1840,  almost  two  years 
later,  shows  an  increased  volume  of  business,  but  in  reality 
the  bank  was  in  a  much  weaker  condition.  $28,313.41  of  its 
assets  were  already  listed  as  suspended  debt  and,  as  after- 
wards developed,  a  large  part  of  the  loans  and  discounts 


206Page  82. 

207Ford,  History  of  Illinois,  190. 


112         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [470 

were  uncollectible.  Officials  in  charge  of  the  construction 
of  the  new  capitol  building  had  obtained  advances  of  $84,- 
197  without  interest,  while  similar  favors  had  been  granted 
to  the  fund  commissioners  for  the  prosecution  of  internal 
improvements.  The  Bank  of  Illinois  had  been  more  for- 
tunate than  the  state  bank  in  that  it  had  been  able  to 
dispose  of  all  but  $25,280.96  of  its  state  bonds.  The  large 
increase  in  the  "real  estate"  item  is  probably  due  to  the 
erection  of  a  banking  house  at  Shawneetown  at  a  cost, 
when  completed,  of  $80,000.208  The  bank  had  suspended 
specie  payments  in  October,  1839,  and  had  thus  been  able 
to  maintain  its  specie  reserve  pending  resumption  by  all 
the  western  banks  in  January,  1841.209  Meanwhile,  the 
outstanding  circulation  had  increased  steadily  until  it  was 
now  greater  by  seventy-five  per  cent  than  in  1838.  The 
comparatively  large  amount  of  undivided  profits  represents 
the  earnings  which  had  accumulated  since  the  semi-annual 
dividend  of  three  per  cent  in  June.  It  will  be  noted  that 
during  the  preceding  two  years  a  considerable  sum  had 
been  set  aside  by  the  directors  as  a  surplus. 

In  June,  1842,  as  has  been  noted,  the  Bank  of  Illinois 
suspended  operations  and  soon  after  the  date  of  the  last 
report  in  the  table  went  into  liquidation.  Comparatively 
little  change  had  occurred  in  the  status  of  loans  and  dis- 
counts save  that  an  increased  amount  had  been  charged 
under  "suspended  debts."  The  $370,818.34  listed  under 
"Illinois  securities"  represents  the  scrip  given  to  the  bank 
by  the  state  in  payment  of  the  advances  noted  in  the  report 
for  1840.  The  $11,982.22  listed  in  the  table  as  other  assets 
represents  the  balances  of  the  various  branches.  The  bank 
had  withdrawn  a  considerable  amount  of  its  paper  from 
circulation  and  had  increased  its  surplus  to  $126,938.29 
but,  as  will  be  seen,  its  loans  and  discounts  proved  to  be 
entirely  undependable  when  the  final  settlement  was  made. 

In  the  gubernatorial  campaign  of  1842  former  Gover- 
nor Duncan  became  the  candidate  of  the  Whigs  against 

208Goodspeed,  pub.,  History  of  Gallatin,  etc.,  Counties,  100. 
209Sangamo  Journal,  December  19,  1840;  Laws  of  Illinois,  1839-40, 
P-  15. 


471]  BANKING  AND  INTERNAL  IMPROVEMENTS 


113 


Judge  Ford  of  the  supreme  court.  The  Democrats  stigma- 
tized Mr.  Duncan  as  a  British  bank  Whig  and  he  in  turn 
cited  his  various  acts  while  governor  as  consistently  hostile 
to  the  banks.210  The  majority  in  both  parties  was  in  favor 
of  putting  the  banks  into  liquidation,  but  a  few  still  clung 
to  the  hope  that  the  banks  would  soon  resume  their  opera- 
tions. Judge  Ford,  the  Democratic  candidate,  took  the 
stand  that  a  compromise  should  be  made  by  which  the  state 
and  the  banks  would  dissolve  partnership,  leaving  them  to 
settle  up  their  own  affairs  and  go  out  of  business.211  In 
spite  of  the  presence  of  a  substantial  element  of  radical 
anti-bank  Democrats  in  his  party,  Judge  Ford  was  elected. 
The  sympathies  of  Mr.  Carlin,  the  retiring  governor,  were 
with  the  more  radical  wing  of  his  party  but,  out  of  defer- 
ence to  Mr.  Ford,  he  agreed  to  omit  from  his  farewell  mes- 
sage the  paragraphs  recommending  summary  treatment 
of  the  banks.212  In  the  meantime,  however,  he  succumbed 
to  the  influence  of  the  anti-bank  element  and,  much  to  Mr. 
Ford's  surprise,  recommended  to  the  legislature  prompt 
repeal  of  the  banks'  charters.213  He  gave  as  his  reason  for 
urging  such  action  that  the  banks  deserved  no  further 
respite,  for  they  had  utterly  failed  to  accomplish  the  pur- 
pose for  which  they  were  created.  He  felt  that  the  time 
had  come  when  the  freedom  of  the  individual  citizen  should 
be  asserted  against  the  domination  of  vested  interests.  In 
his  inaugural  message,  Governor  Ford  presented  the  pos- 
sible avenues  of  escape  from  the  existing  bank  situation  and 
the  consequences  attached  to  each  of  them.  The  first  was 
to  allow  the  banks  to  make  an  effort  at  resumption;  the 
second,  to  wind  them  up  abruptly  and  withdraw  their  notes ; 
the  third,  to  effect  a  compromise  by  which  the  state  bonds 
held  by  the  banks  would  be  exchanged  for  the  state's  stock 
in  the  banks,  dollar  for  dollar.  He  argued  that  the  first 
plan  would  be  feasible  in  the  case  of  a  small  neighborhood 
institution,  but  wholly  impracticable  in  the  case  of  banks 

210Sangamo  Journal,  May  13,  1842. 

211Ford,  History  of  Illinois,  293;  Alton  Telegraph,  April  1,  1843. 
212Ford,  History  of  Illinois,  298. 
*13Senate  Journal,  1842-43,  p.  21. 


114         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [472 


with  a  circulation  of  four  and  a  half  millions  scattered 
over  the  whole  United  States.  In  opposition  to  the  second, 
and  in  support  of  the  third,  plan  he  argued  that  if  the 
state's  three  millions  in  stock  of  suspended  banks  were 
thrown  upon  the  market  very  little  could  be  realized  and 
the  value  of  the  shares  of  individuals  would  be  practically 
wiped  out.214 

Mr.  Ford  was  opposed  in  the  legislature  by  the  radical 
wing  of  his  party  under  the  leadership  of  Secretary  of  State 
Trumbull.  In  fact,  Mr.  Trumbull  became  so  active  in  his 
opposition  to  a  compromise  with  the  banks  that  the  gover- 
nor removed  him  from  office.215  In  spite  of  the  anti-bank 
faction,  however,  a  joint  resolution  was  passed  recommend- 
ing the  dissolution  of  the  connection  between  the  state  and 
the  banks,  and  authorizing  the  governor,  auditor  and  fund 
commissioner  to  find  out  upon  what  basis  a  settlement 
could  be  had.216  These  officers  entered  into  negotiations 
with  the  banks  and  in  a  short  time  submitted  the  following 
report  from  the  state  bank :  The  state  was  indebted  to  the 
bank  to  the  extent  of  |2,152,404.09,217  while  the  bank  was 
liable  to  the  state  for  $2,100,000  invested  in  shares  of  stock. 
The  directors  were  willing  to  settle  with  the  state  by  ex- 
changing the  bonds  and  other  evidences  of  state  indebted- 
ness for  stock,  dollar  for  dollar.  The  relationship  between 
the  two  would  thus  be  dissolved  and  the  bank  would  be 
allowed  to  continue  as  a  private  institution  with  only  a 
nominal  amount  of  state  shares  to  use  as  a  defense  against 
attacks  on  its  constitutionality.218  This  plan  was  embodied 

214Senate  Journal,  1842-43,  pp.  36  ff. 

215 Independent  Democrat  (Springfield),  March  20,  1843;  Gerhard, 
Illinois  as  it  is,  103. 

216Laws  of  Illinois,  1842-43,  p.  321. 

217This  amount  was  made  up  as  follows : 

Bonds   $1,686,000.00 

Scrip    17,534.50 

Advances  for  current  expenses   292,373.17 

Advances  to  fund  commissioners   156,496.42 


$2,152,404.09 

218Reports  of  Session  (Senate),  1842-43,  p.  94. 


473]  BANKING  AND  INTERNAL  IMPROVEMENTS  115 

in  a  bill  drawn  up  by  Governor  Ford  and  presented  by  Mr. 
McClernand,  chairman  of  the  House  committee  on  finance. 
In  his  speech,  which  was  later  published  in  pamphlet  form, 
Mr.  McClernand  showed  in  an  able  manner  the  unquestion- 
able wisdom  of  a  complete  divorce  between  the  state  and 
the  banks.  He  estimated  that  the  state  had  already  paid 
out  |360,000  interest  on  the  bonds  used  in  buying  bank 
stock  and  had  received  in  dividends  but  |207,500.  If  she 
continued  this  relationship,  at  the  present  outlook  she 
would  be  called  upon  to  meet  the  interest  but  with  the 
prospect  of  no  dividends  whatever.219  The  bill  was  passed 
by  a  vote  of  107  to  4  and  sent  to  the  senate,  where  the  oppo- 
sition tried  to  kill  it  with  amendments,  but  it  was  passed  / 
without  serious  difficulty  and  received  the  approval  of  the 
council  of  revision. 

The  act  required  the  state  bank  to  go  into  liquidation 
at  once  and  within  thirty  days  to  pay  all  its  specie  over  its 
counters,  except  fifteen  thousand  dollars,  to  depositors  and 
holders  of  notes.  The  officers  of  the  bank  were  first  to 
ascertain  the  ratio  which  the  supply  of  specie  on  hand  bore 
to  the  amount  of  notes  and  deposits  and  no  person  was  to 
receive  more  than  that  proportion  of  nis  claim  in  specie. 
For  the  balance,  he  was  to  be  given  certificates  good  for 
payment  of  debts  to  the  bank  and  for  the  purchase  of  bank 
land  sold  on  execution.  Four  years  were  allowed  for  the 
complete  settlement  of  affairs  and  at  the  end  of  each  year 
a  distribution  of  specie  was  to  occur  until  all  notes  and 
certificates  were  redeemed.  Debtors,  however,  were  to  be 
allowed  to  pay  their  obligations  in  five  instalments.  The 
act  created  the  office  of  state  bank  commissioner,  whose 
duties  were  as  follows :  ( 1 )  superintend  the  transactions 
of  the  bank  officers;  (2)  act  as  a  state  director;  (3)  obtain 
information  (by  administering  oaths,  if  necessary),  and 
stop  all  questionable  practices  with  court  injunction,  if 
needed.  The  bank  was  given  only  three  days  in  which  to 
accept  or  reject  the  provisions  of  the  law.    If  it  accepted, 

219Speech  of  J.  A.  McClernand :  On  Bill  to  Divorce  Banks  of  Illinois 
from  State. 


116         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [474 


it  must  deliver  to  the  governor  evidences  of  state  indebted- 
ness to  the  amount  of  $2,050,000  and  receive  from  him  a 
like  amount  of  its  stock.220  The  state  directors  were  then 
required  to  resign  in  favor  of  the  state  bank  commissioner, 
and  if  any  differences  should  thereafter  arise  between  the 
state  and  the  private  directors  the  matter  must  be  left  to 
arbitration.221  All  the  branches  were  to  be  closed  at  once 
and  all  the  bank's  property  appraised  and  sold  at  public 
auction.222 

The  terms  of  the  act  were  promptly  approved  by  the 
directors,  who  delivered  to  the  governor  $1,786,000  in  bonds 
and  $287,501.51  in  auditor's  warrants,  thereby  reducing  the 
state  debt  by  $2,073,501.51.223  When  the  governor  and  the 
general  assembly  gathered  in  front  of  the  state  house  and 
made  a  bonfire  of  the  bonds,  the  spirit  of  repudiation  was 
destroyed  with  them  and  the  general  feeling  pervailed  that 
the  state  was  on  the  road  to  recovery  from  the  effects  of  six 
years  of  folly.224  The  legislature  then  proceeded  to  enact 
several  minor  laws  relating  to  the  banks,  chief  among 
which  was  the  act  of  February  23,  which  provided  that  no 
note  issued  by  an  Illinois  bank  should  be  received  for  public 
dues  and  that  holders  of  auditors'  warrants  should  cease 
to  receive  interest.225  The  act  of  February  25  authorized 
the  treasurer  to  pay  out  all  Illinois  bank  notes  in  his  pos- 
session at  their  current  value,  which  at  that  time  was  less 
than  fifty  cents  on  the  dollar.226 

Governor  Ford  appointed  N.  H.  Purple  state  bank 
commissioner  and  he  assumed  his  duties,  January  31.  In 
his  examination  of  the  bank's  books  he  found  that  $476,- 

220This  left  a  nominal  state  holding  of  $50,000  in  the  bank. 

221This  method  was  resorted  to  on  August  14,  1845,  in  order  to  settle 
a  claim  held  by  the  bank  against  the  state.  The  arbitrators  awarded  the 
bank  $85,380.45.   Reports  of  Session  (H.  of  R.),  1846-47,  p.  20. 

222Laws  of  Illinois,  1842-43,  pp.  21  ff. 

223Greene  and  Thompson,  Governors'  Letter-Books,  ii,  51-53. 
224February  9,   1843.    Senate  Journal,  1844-45,  P-   10;  Greene  and 
Thompson,  Governors'  Letter-Books,  ii,  54. 
225 Laws  of  Illinois,  1842-43,  p.  231. 
22QIbid.,  231. 


475]  BANKING  AND  INTERNAL  IMPROVEMENTS 


117 


772.53  in  specie  was  available  for  paying  noteholders  and 
depositors.  Of  this  amount,  he  authorized  the  cashier  to 
pa}7  $8,432  on  a  judgment  and  f 15,000  was  placed  on  re- 
serve according  to  the  terms  of  the  liquidation  act.  The 
remaining  $453,349.53  was  distributed  among  the  depos- 
itors and  noteholders  as  their  first  dividend.  By  the  time 
Mr.  Purple  made  his  first  report,  December  2,  1844,  the 
bank  had  reduced  the  outstanding  circulation  from  $1,- 
430,308  to  $229,901.00  and  its  total  liabilities  other  than 
capital  stock  to  $870,000.  In  his  judgment,  the  assets  would 
be  sufficient  to  meet  this  obligation,  but  he  offered  no  en- 
couragement to  the  holders  of  the  more  than  $1,500,000 
worth  of  capital  stock.227 

In  his  message  to  the  legislature,  which  met  in  Decem- 
ber, 1844,  Governor  Ford  commented  on  the  great  improve- 
ment that  had  taken  place.  The  depreciated  notes  of  the  <t 
banks  had  been  withdrawn  from  circulation  and  specie  and 
the  paper  of  specie  paying  banks  had  succeeded  them.  A 
period  of  economy  had  followed  the  reckless  extravagance 
and  accumulation  of  indebtedness  which  characterized  the 
whole  internal  improvement  era.  Mr.  Ford  granted  that 
banks  were  necessary  to  a  community  with  well  established 
business  interests,  but  he  was  convinced  from  almost  thirty 
years  of  observation  that  Illinois  succeeded  better  without 
them.  He  cited  the  three  successive  failures  in  conducting 
banks  in  the  state  as  proof  of  his  assertion  and  added  that 
so  long  as  debtors  were  so  indifferent  about  meeting  their 
obligations  a  bank  was  impossible.228 

During  the  year  1845  some  progress  toward  a  final 
settlement  was  made  by  the  state  bank,  but  its  assets  Avere 
shrinking  at  an  alarming  rate.  The  expense  account  due 
to  salaries,  taxes,  fees  and  court  costs  left  little  for  the 
creditor.  In  his  report  for  1846  the  commissioner  listed 
under  available  assets:  bills  and  notes  receivable,  $432,- 
856.35,  suspended  debts  $460,098.21,  loans  $50,218.23,  real 
estate  (nearly  all  of  it  pledged  by  bank  debtors)  $1,009,- 

227Reports  of  Session  (H.  of  R.),  1844-45,  P-  123. 
228Senate  Journal,  1844-45,  P-  J0- 


118         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [476 

522.86,  which,  with  $11,193.21  in  coin,  made  a  total  of 
$1,020,716.07.  On  the  other  hand,  the  liabilities  other  than 
capital  amounted  to  $663,073.62,  so  that  if  every  dollar  of 
the  assets  could  be  realized  there  would  be  left  for  the 
holders  of  $1,544,655  worth  of  stock  but  $357,642.45,  not 
to  mention  the  fact  that  they  had  not  received  a  dividend 
in  several  years.229  The  editor  of  the  Alton  Telegraph,  in 
commenting  upon  the  situation,  condemns  the  state  for 
causing  what  he  considers  an  entirely  unmerited  loss  to  the 
private  stockholders.  In  proof  of  his  assertion  he  cites  the 
fact  that  the  private  holders  of  shares  were  compelled  to 
pay  for  them  with  specie  while  for  the  greater  part  of  the 
state's  stock  there  was  placed  in  the  bank  at  their  face 
value  an  issue  of  bonds  worth  but  twenty  cents  on  the  dol- 
lar. He  calculated  that  if  the  state  had  paid  the  same  pro- 
portion of  specie  as  had  been  exacted  from  individuals  the 
bank  could  reimburse  its  shareholders  to  the  extent  of 
seventy-eight  cents  on  the  dollar  instead  of  twenty-six,  the 
former  figures  comparing  favorably  with  the  terms  of  settle- 
ment of  any  western  bank.230 

Governor  Ford  may  be  pardoned  for  mildly  boasting 
in  his  farewell  message  in  1846  of  the  improvement  in  con- 
ditions since  his  inauguration  in  1842.  At  the  earlier  date 
the  state  had  become  indebted  for  bank  stock  and  internal 
improvements  to  the  extent  of  over  fourteen  millions.  The 
books  of  the  treasurer  showed  a  deficit  of  more  than 
$313,000  current  expenses.  The  warrants  of  the  auditor 
were  received  at  fifty  cents  on  the  dollar  and  the  state's 
credit  had  fallen  into  so  great  disrepute  that  the  postmaster 
at  Springfield  refused  to  deliver  any  mail  to  the  state 
house  unless  some  one  became  personally  liable  for  the 
postage.  The  "credit"  habit  had  taken  such  a  hold  on  the 
people  that  the  liquidation  of  debts,  both  public  and  pri- 
vate, seemed  hopeless.    By  1846  the  annual  shortage  for 

^Reports  of  Session  (H.  of  R.),  1846-47,  p.  25. 

230 'Alton  Telegraph,  July  4,  1846.  The  final  outcome  was  that  the 
stockholders  received  nothing  at  all.  Reports  of  Session  (Senate),  1859, 
P.  831. 


477]  BANKING  AND  INTERNAL  IMPROVEMENTS  119 

current  expenses  amounted  to  but  $20,000.  The  warrants 
of  the  auditor  were  received  nearly  at  par  in  spite  of  the 
fact  that  they  no  longer  bore  interest.  The  period  of  reck- 
less banking  had  come  to  an  end  and  a  dependable  cur- 
rency had  come  in  to  take  the  place  of  depreciated  notes. 
The  state  debt  had  been  reduced  by  three  millions  and  pro- 
vision had  been  made  to  pay  five  millions  more  as  soon  as 
the  canal  should  be  completed.  The  general  situation  all 
over  the  country  had  improved,  as  was  evidenced  by  the 
lively  demand  for  land  on  the  part  of  newly  arrived  set- 
tlers".231 

The  feeling  against  banks  was  too  universal  to  warrant 
a  candidate  for  governor  running  on  a  pro-bank  platform. 
Although  the  more  intelligent  citizens  realized  the  need  of 
adequate  banking  facilities,  the  politicians  in  both  parties 
were  eager  to  clear  themselves  of  any  responsibility  for  the 
events  of  the  last  ten  years  and  announced  their  opposition 
to  the  incorporation  of  any  more  banks.  Aside  from  a  word 
of  commendation  for  the  bank  policy  of  the  Ford  adminis- 
tration, Governor  French  in  his  inaugural  address  had  little 
to  say  on  the  subject.232  As  the  date  set  for  the  end  of  the 
state  bank's  existence  (March  4,  1847)  approached,  Mr. 
French  found  that  institution  far  from  ready  to  wind  up 
its  affairs.  The  officers  of  the  bank  had  collected  nearly 
a  million  dollars,  which  was  about  all  that  the  general  con- 
dition of  its  debtors  seemed  to  permit.  For  this  reason 
only,  the  House  committee  on  banks  recommended  that  an 
extension  of  time  be  granted,  but  that  in  so  doing  care 
should  be  exercised  "to  leave  no  spark  of  vitality  in  the 
bank  or  its  charter."233  This  was  seized  upon  by  the  advo- 
cates of  the  bank,  however,  as  the  psychological  moment 
for  securing  the  revival  of  the  state  bank,  and  they  pre- 
sented a  bill  to  recharter  that  institution  for  five  years. 
A  surprisingly  large  minority  was  found  to  be  in  favor  of 


231Senate  Journal,  1846-47,  pp.  8  ff. 
232Ibid.,  pp.  15  ff. 

233Re ports  of  Session  (H.  of  R.),  1846-47,  p.  276. 


120         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [478 


the  measure,234  but  it  was  compelled  to  give  way  to  the  act 
of  March  1,  1847,  which  extended  the  life  of  the  bank  until 
November  1, 1848,  for  the  sole  purpose  of  settling  its  affairs. 
It  provided  that  if  by  that  time  the  affairs  of  the  bank  were 
still  unsettled  the  governor  should  appoint  three  trustees 
to  wind  up  its  business.  The  legislature  was  determined  to 
discourage  any  undue  procrastination  on  the  part  of  the 
directors  and  incorporated  several  provisions  calculated  to 
stimulate  a  speedy  settlement  :  (1)  It  was  provided  that 
the  certificates  given  to  note  holders  and  depositors  should 
draw  six  per  cent  interest  until  paid;  (2)  All  accounts  due 
the  bank  ceased  to  draw  interest  from  the  date  of  passage 
of  the  act;  (3)  Any  creditor  was  thereafter  at  liberty  to 
attach  any  of  the  bank's  real  estate  and  obtain  judgment  by 
forced  sale;  (4)  The  local  assessors  were  commanded  to 
tax  all  bank  property  within  their  jurisdiction,  whereas 
before  it  had  been  exempted  and  a  capital  stock  tax  paid 
into  the  state  treasury.235 

When  the  first  of  November,  1848,  arrived,  the  affairs 
of  the  bank  were  far  from  settlement,  so  the  governor  ap- 
pointed N.  H.  Ridgely,  the  cashier,  Uri  Manly  and  John 
Calhoun  trustees  to  settle  its  affairs.  Thereupon  the  di- 
rectors resigned  and  assigned  all  the  remaining  assets  to 
the  trustees.236  In  their  report  to  the  governor  in  1851, 
the  trustees  stated  that  the  assets  of  the  bank  would  not 
meet  its  liabilities  and  that  the  stock  was  utterly  worthless. 
During  their  tenure  of  office  they  had  collected  only  $36,- 
666.85  with  which  to  pay  obligations,  other  than  capital 
stock,  to  the  extent  of  $454,190.96.  The  book  value  of  the 
real  estate  and  the  suspended  debts  due  the  bank  was 
$1,444,000,  but  only  a  small  part  of  this  amount  could  ever 
be  realized.237  Mr.  Ridgely  shortly  afterwards  offered  to 
Governor  French  $50,000  in  state  bonds  in  settlement  of 
the  stock  still  held  by  the  state.   Governor  French  refused 


^Chicago  Democrat,  February  23,  1847. 

235Laws  of  Illinois,  1846-47,  p.  20. 

23QBankers  Magazine,  iii,  382. 

237 Reports  of  Session  (Senate),  1851,  pp.  137,  138. 


479]  BANKING  AND  INTERNAL  IMPROVEMENTS 


121 


to  take  the  bonds  until  lie  heard  that  a  Cincinnati  creditor 
of  the  bank  was  about  to  seize  them.  He  then  accepted 
them,  with  the  approval  of  the  legislature,  and  the  state's 
connection  with  the  bank  was  brought  to  an  end.238 

The  settlement  of  the  bank's  affairs  continued  to  drag 
along  year  after  year  until  in  1857  Governor  Bissell  at- 
tempted to  remove  Messrs.  Ridgely,  Manly  and  Calhoun, 
and  appointed  three  new  trustees.  The  old  board,  however, 
refused  to  give  up  the  property  in  their  hands  and  Mr. 
Bissell  instituted  quo  warranto  proceedings  to  oust  them. 
The  court  decided  that  with  the  surrender  of  the  $50,000 
of  state  stock  the  bank  ceased  to  be  subject  to  the  state's 
jurisdiction  and  that  the  removal  of  the  trustees  was  pos- 
sible only  by  judicial  proceedings  begun  by  a  stockholder. 
Governor  Bissell  was  determined  nevertheless  that  the  state 
should  interfere  in  the  conduct  of  the  bank's  affairs  and 
secured  the  appointment  of  a  committee  of  the  legislature 
to  inquire  into  the  affairs  of  the  trustees.  They  found  that 
Mr.  Manly  had  ceased  to  take  an  active  interest  in  the 
bank's  business  and  that  Mr.  Calhoun  had  moved  to  Kansas. 
These  gentlemen,  however,  continued  to  draw  the  annual 
stipend  of  $1,000,  but  they  each  remitted  $250  of  this 
amount  to  Mr.  Ridgely  for  doing  all  the  work.239  Mr. 
Ridgely,  when  called  to  the  stand,  scored  the  committee  for 
intruding  into  the  affairs  of  a  private  institution,  but  gave 
them  a  fund  of  information  about  the  progress  that  had 
been  made  and  the  reasons  for  delay  in  settlement. 

The  liabilities  still  outstanding  in  1859 — sixteen  years 
after  the  bank  had  gone  into  liquidation — amounted  to 
$150,000,  while  the  more  than  $1,500,000  invested  in  capital 
stock  was  a  total  loss  to  the  investors.  The  assets  amounted 
to  fifteen  or  twenty  thousand  dollars  in  cash  and  "some 
old  debts  due  for  fifteen  or  twenty  years  and  practically 
worthless."  The  trustees  had  held  office  for  eleven  years, 
but  had  been  able  to  declare  but  one  dividend  of  sixteen 
and  two-thirds  per  cent  to  the  note  holders  and  depositors. 

238Re  ports  of  Session,  1859,  p.  841.  Senate  Journal,  1852,  p.  13. 
^Reports  of  Session  (H.  of  R.),  1859,  p.  838. 


122         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [480 


Asked  as  to  the  trustees'  plan  for  a  final  settlement,  Mr. 
Kidgely  replied  that  they  purposed  to  advertise  all  the 
assets,  chiefly  land,  for  sale,  but  most  of  the  land  was  very 
undesirable  or  had  a  faulty  title.  Arrangements  for  such 
a  sale  had  all  been  completed  when  a  Mr.  Corwyth,  the 
holder  of  a  large  amount  of  outstanding  certificates,  at- 
tached forty  or  fifty  thousand  dollars'  worth  of  land  in  the 
lead  region  and  the  sale  had  to  be  postponed.  Mr.  Ridgely's 
explanation  of  the  poor  showing  made  by  the  trustees  was 
that  property  had  been  accepted  years  ago  at  ten  times  its 
value  and  the  notes  of  persons  afterwards  hopelessly  insol- 
vent had  been  freely  discounted.  One  of  the  most  interest- 
ing episodes  in  the  lengthy  examination  occurred  when  the 
witness  was  questioned  about  the  personal  relations  of  the 
trustees  with  the  bank : 

Mr.  Mack :  "You  are  reaching  a  low  point  in  the  avail- 
able assets  of  this  bank  and  yet  there  is  a  constant  and  con- 
tinuous drain  upon  these  assets  of  at  least  three  thousand 
dollars  a  year,  to  pay  for  the  services  of  trustees  when  one 
man  could  discharge  the  duties  just  as  well  as  three." 

Witness  (Mr.  Ridgely)  :  "There  is  no  question  of  that. 
Then  again,  I  suppose  that  the  creditors  and  individual 
stockholders  would  rather  have  one  trustee  than  three  but 
the  legislature  thought  otherwise." 

Mr.  Mack:  "But  suppose  that  the  legislature  should 
alter  or  repeal  that  law?" 

Witness:  "I  don't  think  that  they  could  touch  it. 
If  we  are  under  the  supervision  of  the  courts  the  legislature 
has  no  control  over  us." 

Mr.  Mack:  "Mr.  Calhoun  (who  had  moved  out  of  the 
state)  could  resign  but  you  cannot  remove  him  without 
application  to  a  court  of  chancery  .  .  .  and  up  to  the  time 
the  court  removes  him  he  continues  to  draw  $1,000  a  year?" 

Witness :  "He  never  has  drawn  but  f 750  a  year.  The 
arrangement  was  that  I  should  do  all  the  work  and  take 
half  the  pay  ($1,500)  ,"240 

The  closing  sale  of  the  bank's  real  estate  and  chattels 
was  held  in  November,  1862,  when  auctions  were  held  at 
^Reports  of  Session  (H.  of  R.),  1859,  p.  838. 


481]  BANKING  AND  INTERNAL  IMPROVEMENTS 


123 


Mineral  Point,  Wisconsin,  and  Springfield.241  Upon  the 
death  of  Mr.  Ridgely,  the  trusteeship  of  the  state  bank  was 
handed  over  to  Mr.  William  Ridgely,  his  son,  who  has  been 
called  upon  a  number  of  times  to  help  clear  the  title  of 
property  in  which  the  bank  had  an  interest  at  some  time.242 
The  history  of  the  settlement  of  the  affairs  of  the  Bank 
of  Illinois  at  Shawneetown  is  somewhat  similar  to  that  of 
the  state  bank.  At  the  time  when  a  committee  of  state 
officers  (1842)  had  inquired  upon  what  terms  the  directors 
of  the  Bank  of  Illinois  would  settle  they  replied  that  they 
would  buy  the  state's  stock  and  pay  for  it  with  bonds ;  but 
instead  of  being  compelled  to  go  into  liquidation  they  in- 
sisted upon  continuing  as  a  private  institution.243  The 
legislature  was  determined  that  the  bank  should  end  its 
existence  and  yet  could  not  make  any  alterations  in  the 
original  charter  without  the  bank's  consent.  In  order  to 
induce  the  directors  to  accept  a  plan  for  a  compromise  with 
the  state  similar  to  the  one  made  with  the  state  bank,  and 
yet  compel  them  to  go  into  liquidation,  two  laws  were 
passed.  One,  very  stringent  in  its  terms,  provided  for  the 
immediate  assignment  of  all  the  bank's  assets  to  three  com- 
missioners who  were  to  be  clothed  with  extraordinary 
powers.244  The  other  was  much  more  mild  and  provided 
for  an  equitable  settlement  with  the  state  and  the  liquida- 
tion of  the  bank's  affairs  under  the  direction  of  its  own 
officials.245  The  scheme  of  the  legislature  succeeded  and 
the  bank  committed  itself  to  an  agreement  to  turn  over  to 
the  governor  $500,000  in  evidences  of  state  indebtedness 
at  once,  and  the  remaining  f 500,000  within  a  year  with  in- 
terest at  six  per  cent.  The  state  was  to  retain  three  direc- 
tors until  the  full  amount  was  received.  The  governor 
accepted  the  first  payment  and  surrendered  a  like  amount 
of  capital  stock  held  by  the  state.   The  directors  then  pro- 

241Bankers  Magazine,  xvii,  476. 

242An  example  of  this  is  the  site  of  the  Auditorium  Hotel  and  Theater 
in  Chicago.    Knox,  History  of  Banking  in  the  United  States,  722. 
243Reports  of  Session,  1842-43,  p.  201. 
244Laws  of  Illinois,  1842-43,  p.  27. 
24Hbid.,  30. 


124         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [482 


ceeded  to  wind  up  the  bank's  business  under  about  the  same 
provisions  as  had  been  laid  down  for  the  state  bank. 

The  Bank  of  Illinois,  as  has  been  noted,  had  recently 
changed  hands  and  was  now  controlled  by  a  group  of  men 
who  intended  to  make  the  most  of  their  opportunity.  Just 
before  the  passage  of  the  liquidation  act  they  borrowed 
$100,000  of  the  bank's  specie  and  spent  it  in  buying  state 
bonds  for  a  few  cents  on  the  dollar.  Among  the  bargains 
obtained  was  one  from  Macalister  and  Stebbins  who  had 
advanced  $261,500  to  the  state  and  were  still  holding 
$804,000  as  security.  Although  the  title  to  these  bonds 
was  still  vested  in  the  state,  the  firm  did  not  hesitate  to 
dispose  of  $333,000  worth  of  them  to  the  Shawneetown 
bankers.  These  men  now  repaid  their  $100,000  loan  to 
the  bank  with  bonds,  reaping  a  profit  of  more  than  seventy 
cents  on  the  dollar.  But  they  did  not  stop  at  this  point 
for  they  owed  other  large  amounts  which  they  now  settled 
with  bonds.  When  the  time  came  for  making  a  final  settle- 
ment with  the  state,  these  Macalister  and  Stebbins  bonds 
were  tendered  to  Governor  Ford  at  their  face  value.  When 
the  governor  refused  to  accept  them  the  directors  sought 
to  compel  their  acceptance  by  an  order  of  the  court  but  the 
judge  refused  to  issue  a  mandamus  against  a  co-ordinate 
branch  of  the  government.246 

When  Governor  Ford  found  that  Macalister  and  Steb- 
bins were  unable  to  make  a  settlement  with  the  state  and 
that  the  Shawneetown  bank  shares  held  by  the  state  were 
daily  becoming  more  worthless,  he  received  the  disputed 
bonds  subject  to  the  consent  of  the  legislature.  For  a 
time  that  body  refused  to  give  its  sanction  but  later  agreed 
to  accept  the  bonds  at  forty-eight  cents  on  the  dollar,  leav- 
ing a  balance  of  $295,000  still  due  from  the  bank.247  In 
December,  1844,  after  nearly  two  years  devoted  to  settling 
the  bank's  affairs,  the  state  commissioner  reported  that 
the  cashier  by  paying  $166,885.50  in  specie  to  creditors 


'Greene  and  Thompson,  Governors'  Letter-Books,  ii,  106,  107. 
Ibid.,  120;  Lazes  of  Illinois,  1844-45,  P-  246. 


483] 


BANKING  AND  INTERNAL  IMPROVEMENTS 


125 


and  by  matching  debits  against  credits  through  the  medium 
of  the  notes  and  certificates,  had  settled  more  than  a  third 
of  the  obligations  other  than  capital  stock.  He  estimated 
that  from  a  half  to  three-fourths  of  the  assets  were  good.248 
The  legislature  decided,  however,  to  abolish  the  office  of 
commissioner  and  authorized  the  bank  to  place  its  property 
in  the  hands  of  four  assignees.  As  fast  as  any  evidences 
of  state  indebtedness  came  into  the  bank's  hands,  they 
were  to  be  turned  over  to  the  state  in  payment  of  the 
$295,000  still  due  it  in  the  exchange  of  bonds  for  stock. 
If  after  four  years  the  amount  was  not  paid  in  full,  the 
state's  claims  were  to  be  preferred  over  that  of  the  stock- 
holders to  the  extent  of  $20,000  if  necessary.  If,  however, 
at  the  time  of  the  final  settlement  there  still  remained  a 
balance  due  the  state,  the  assets  were  to  be  divided  between 
the  state  and  the  private  stockholders  in  proportion  to 
the  amount  of  their  respective  stock  holdings  at  that 
time.249  The  assignees  found  that  the  four  years  time 
allotted  to  them  were  entirely  inadequate  for  the  per- 
formance of  their  task  so  the  legislature  advanced  the  date 
of  final  settlement  to  January  1,  1851. 250  After  that  date 
the  assignees  were  given  the  power  to  sue  in  their  own 
names;  the  assets  and  liabilities  arising  at  Shawneetown 
and  Lawrenceville  were  accepted  by  Messrs.  Caldwell  and 
Ryan  and  those  at  Jacksonville,  Alton  and  Pekin  by 
Messrs.  Dunlap  and  Smith.  The  assignees  had  not  only 
never  paid  the  state  any  part  of  the  $295,000  still  due  but 
had  allowed  interest  on  it  to  accumulate  to  the  extent  of 
$62,000.251  In  1852  the  State  Bank  of  Missouri  united  with 
several  other  creditors  in  bringing  a  chancery  suit  in  the 
federal  courts  against  the  Bank  of  Illinois  and  its 
assignees.  The  court  ordered  the  assignees  to  turn  over 
the  bank's  affairs  to  three  receivers  who  were  instructed 
to  settle  up  the  business  as  speedily  as  possible.   The  legis- 


2*8Reports  of  Session  (H.  of  R.),  1844-45,  P-  163. 
249Laws  of  Illinois,  1844-45,  P-  246. 
250Ibid.,  38. 

251  Re  ports  of  Session  (Senate),  1849,  p.  104. 


126         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [484 


lature  ratified  this  action  by  an  act  recognizing  the  receiv- 
ers as  the  legal  successors  of  the  Bank  of  Illinois.252  Only 
one  of  the  receivers  qualified  for  the  office  and  in  1853  he 
proceeded  to  sell  at  public  auction  the  remaining  effects  of 
the  bank.  The  handsome  four  story  building  erected  at  a 
cost  of  $80,000  was  bought  by  Governor  Matteson  for 
$15,000  and  other  property  was  disposed  of  at  similar 
sacrifices.253  The  claims  of  the  note  holders  and  depositors 
seem  to  have  been  settled  in  a  fairly  satisfactory  way  but 
after  the  state  had  been  reimbursed  and  the  receivers'  fees 
and  court  costs  paid  there  was  nothing  left  for  the  14,884 
private  stockholders.254 

But  little  attention  was  paid  by  the  press  or  the  legis- 
lature to  the  Bank  of  Cairo  which  was  opened  at  Kaskaskia 
by  a  group  of  investors  who  had  obtained  possession  of  its 
unused  territorial  charter.  As  late  as  1839  the  bank  bore 
a  good  reputation  and  furnished  a  considerable  portion  of 
the  medium  of  exchange  in  south-western  Illinois.255  A 
large  portion  of  its  stock  was  held  by  Wright  and  Com- 
pany, London  bankers,  as  agents  for  various  owners,  hence 
the  policy  of  the  bank  could  be  dictated  by  the  holders  of 
their  proxies.256  The  directors  suspended  specie  payment 
with  the  other  western  banks  but  on  account  of  their  lim- 
ited clientage  their  action  did  not  attract  wide  attention.257 
In  1840  the  Bank  of  Cairo  was  declared  to  be  serving  the 
interests  of  its  locality  better  than  the  other  Illinois  banks 
were  doing  in  their  respective  territories.  It  furnished 
about  seventy  per  cent  of  the  small  notes  in  circulation  in 
the  region  tributary  to  St.  Louis,  and  thus  supplied  the 
demand  for  change  much  more  easily  than  its  larger  rivals 
who  depended  upon  gold  and  silver  or  the  notes  of  other 
banks  for  amounts  less  than  five  dollars.  The  directors 
made  a  specialty  of  the  small  notes,  for  the  fact  that  they 

252Laws  of  Illinois,  1851,  p.  120. 

253Goodspeed,  pub.,  History  of  Gallatin,  etc.,  Counties,  100. 
^Chicago  Democrat  (weekly),  September  10,  1853. 
255Sangamo  Journal,  December  24,  1839. 
256Chicago  American,  January  15,  1841. 

257Greene  and  Thompson,  Governors'  Letter-Books,  ii,  60,  61. 


485] 


BANKING  AND  INTERNAL  IMPROVEMENTS 


127 


were  always  in  demand  kept  them  from  being  presented  for 
redemption.258  In  reply  to  the  charge  of  a  St.  Louis  paper 
to  the  effect  that  the  bank  was  not  solvent,  the  cashier 
published  a  statement  in  September,  1840,  of  the  resources 
and  liabilities.  At  that  time  a  circulation  of  $200,138.00 
and  deposits  of  about  $13,000  constituted  the  only  liabili- 
ties in  addition  to  the  capital  and  surplus  of  $295,000.  To 
offset  these  items  there  was  specie  to  the  amount  of  $112,- 
451.70,  eastern  exchange  to  the  extent  of  $10,096.85  and 
loans  and  discounts  to  the  amount  of  about  $350,000.  Of 
this  last  item  more  than  $250,000  was  created  by  the  pur- 
chase of  bills  of  exchange  arising  from  the  shipment  of 
produce  down  the  Mississippi.259  The  bank  later  became 
heavily  involved  in  the  operations  of  the  Cairo  City  and 
Canal  Company,  a  corporation  engaged  in  constructing 
levees  and  other  public  works  at  Cairo,  and  its  standing 
began  to  be  questioned.260  The  result  was  that  the  notes 
had  depreciated  five  or  ten  per  cent  before  those  of  the 
other  Illinois  banks  had  begun  to  suffer  a  discount.261  A 
year  later,  the  affairs  of  the  bank  were  in  so  hopeless  a 
condition  that  its  paper  was  refused  by  brokers.262  In 
February,  1843,  the  directors  went  into  bankruptcy  and 
assigned  all  the  bank's  property,  thereby  virtually  surren- 
dering their  charter.263  Thereupon  the  legislature  by  the 
act  of  March  4,  1843,  formally  repealed  the  act  of  incorpor- 
ation and  provided  a  plan  for  the  speedy  settlement  of  the 
bank's  affairs.264  Governor  Ford  and  the  legislature  were 
criticized  for  the  immediate  repeal  of  the  charter  of  the 
Cairo  bank  when  the  other  banks  were  allowed  such  liberal 
terms  of  settlement.  In  his  reply  to  these  criticisms,  the 
governor  justified  the  more  severe  treatment  of  the  Bank 
of  Cairo  by  the  fact  that  it  had  expanded  its  discounts 

258Chicago  American,  September  18,  1840. 
259Ibid. 

260Ibid.,  January  15  and  21,  1841. 
°-^Ibid.,  July  2,  1841. 

2G2Chicago  Democrat  (weekly),  June  8,  1842. 

263Ibid.,  March  21,  1843. 

2&*Laws  of  Illinois,  1842-43,  p.  36. 


128         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [486 


beyond  all  hope  of  redeeming  the  consequent  issue  of  notes, 
that  it  had  operated  under  a  charter  of  very  doubtful 
legality  and  that  the  directors  had  already  virtually  sur- 
rendered the  charter  when  they  assigned  their  office  and 
placed  the  bank  in  the  hands  of  receivers.265  It  was  at  first 
believed  that  with  the  specie  in  the  vaults  and  the  money 
obtained  from  the  sale  of  the  Cairo  Canal  Company's  prop- 
erty the  notes  of  the  bank  could  be  redeemed  at  par266  but 
the  late  cashier  of  the  bank  disappeared  with  the  whole 
supply  of  specie.  Some  years  later,  enough  was  realized 
from  the  remaining  assets  to  redeem  the  notes  at  five  cents 
on  the  dollar.267 

A  history  of  the  banking  operations  during  the  period 
of  internal  improvements  would  not  be  complete  without 
some  discussion  of  the  more  or  less  illegal  banking  opera- 
tions that  were  carried  on  in  Chicago.268  Up  to  1835  there 
was  little  demand  for  banking  facilities  in  Chicago.  Gor- 
don S.  Hubbard,  a  local  merchant,  kept  a  bank  account  at 
Buffalo  and  supplied  the  other  traders  with  drafts  on  the 
East.  As  has  already  been  noted,  however,  the  population 
and  commercial  importance  of  the  village  were  increasing 
at  so  rapid  a  rate  that  the  directors  of  the  state  bank 
located  a  branch  in  that  place.269  The  paper  of  the  branch 
bank  furnished  but  a  small  part  of  the  circulating  medium, 
however,  for  Chicago  was  rapidly  becoming  the  commercial 
center  of  the  whole  Northwest;  hence  the  bills  of  Wiscon- 
sin, Michigan  and  Indiana  banks  mingled  freely  with  those 
of  the  Illinois  banks  and  helped  to  drive  out  what  little 
specie  there  was.  For  small  change  the  merchants  issued 
4  tickets  "good  for  groceries,"  "good  for  tobacco,"  "good  for 
a  drink,"  etc.,  according  to  whatever  business  the  person 
issuing  the  notes  followed.270    The  legislature  of  1835-36, 

265Greene  and  Thompson,  Governors'  Letter-Books,  ii,  60,  61. 
-^Chicago  Democrat  (weekly),  March  21,  1843. 
267 'Illinois  State  Journal,  February  2,  1862. 

268This  subject  is  treated  at  great  length  by  Andreas  in  his  History  of 
Chicago. 

269Morris,  History  of  the  First  National  Bank  of  Chicago,  26. 
270Andreas,  History  of  Chicago,  i,  531. 


487]  BANKING  AND  INTERNAL  IMPROVEMENTS 


129 


in  addition  to  chartering  banks,  had  incorporated  the  Chi- 
cago Marine  and  Fire  Insurance  Company  with  a  capital 
of  $100,000.  After  granting  to  the  company  the  usual 
powers  possessed  by  a  concern  of  that  character  the  priv- 
ilege of  receiving  deposits  and  lending  money  was  added 
but  the  issue  of  paper  "in  the  similitude  of  bank  notes"  / 
was  strictly  forbidden.271  In  May,  1837,  the  directors  of 
the  company  announced  that  during  the  "deranged  condi- 
tion" attendant  upon  the  panic  of  1837  they  would  make 
loans  and  receive  deposits.  Depositors  were  given  certifi- 
cates redeemable  in  specie  on  demand  which,  although  they 
bore  no  physical  resemblance  to  bank  notes,  circulated 
freely  at  par.  When  the  company  finally  went  into  volun- 
tary liquidation  its  notes  were  redeemed  and  retired  with- 
out the  slightest  loss  or  friction.272 

In  the  meantime,  Mr.  George  Smith  of  Aberdeen, 
Scotland,  visited  Chicago  and  was  so  impressed  with  the 
prospects  of  the  city  and  the  surrounding  country  that 
upon  his  return  to  his  native  land  he  induced  his  friends  to 
unite  with  him  in  forming  the  Scottish  Illinois  Land  and 
Investment  Company.  They  bought  and  sold  Illinois  real 
estate,  obtaining  large  returns  until  the  panic  of  1837 
brought  business  to  a  standstill.  Smith  hastened  to  Amer- 
ica to  look  after  his  interests  and  during  his  sojourn  in 
Chicago  was  so  impressed  with  the  success  of  the  Chicago 
Marine  and  Fire  Insurance  Company's  operations  that  he 
decided  to  conduct  a  similar  enterprise.  Accordingly  he 
obtained  from  the  territorial  legislature  of  Wisconsin  the 
charter  of  the  Wisconsin  Marine  and  Fire  Insurance  Com- 
pany with  a  capital  of  $225,000,  all  of  which  was  taken  by 
Smith  and  a  small  group  of  fellow  countrymen.  The  head 
office  was  nominally  in  Milwaukee,  but  Mr.  Smith  carried 
on  the  greater  part  of  his  operations  in  Chicago.273  In  spite 
of  the  fact  that  the  issue  of  certificates  of  deposit  designed 
to  circulate  as  money  was  forbidden  by  its  charter,  the 
company  issued  them  freely,  but  maintained  such  high 

271Laws  of  Illinois,  1835-36,  p.  30. 

z72Chicago  American,  May  16,  1837;  Bankers'  Magazine,  xvi,  234. 
27BChicago  Democrat  (weekly),  January  29,  1846. 


130         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [488 

business  standards  that  its  paper  was  in  universal  demand 
and  furnished  a  most  acceptable  addition  to  the  medium  of 
exchange.  So  great  were  the  quick  assets  of  the  firm  that 
the  whole  circulation  could  be  taken  up  on  short  notice, 
hence  it  was  never  found  necessary  to  suspend  specie  pay- 
ment.274 Beginning  with  the  modest  sum  of  $34,028  in 
1841,  the  issue  of  certificates  increased  until  in  1851  the 
total  outstanding  circulation  amounted  to  $1,470,000  and 
numerous  agencies  had  been  established  to  facilitate  re- 
demption.275 In  addition  the  business  men  of  the  territory 
tributary  to  Chicago  were  provided  with  eastern  funds  at 
one  to  two  per  cent.276  The  success  of  the  enterprise 
aroused  the  opposition  of  the  banks  of  the  surrounding 
states  and  territories  and  in  1852  the  legislature  of  Wis- 
consin was  persuaded  to  force  the  company  to  retire  its 
circulation.277  Meanwhile  Smith  had  organized  banks  in 
Washington,  D.  C,  and  Atlanta,  Georgia,  and  was  issuing 
and  redeeming  their  paper  in  the  Northwest.  When  Illi- 
nois adopted  the  free  banking  law,  which  is  to  be  discussed 
in  another  place,  Smith  incorporated  the  Bank  of  America 
under  the  Illinois  law  but  its  circulation  was  never  very 
extensive.  By  1857,  having  acquired  a  large  fortune  with- 
out a  suspicion  of  crooked  dealing  attached  to  it  he  retired 
to  his  native  land.278 

For  many  years  unincorporated  firms  in  Chicago  and 
elsewhere  in  the  state  had  carried  on  a  profitable  banking 
business,  but  they  were  not  permitted  under  the  constitu- 
tion of  1818  to  incorporate  as  banks  or  to  issue  notes,  hence 
they  were  usually  classed  as  brokers.  In  conclusion,  it 
may  be  said  that  as  a  whole  the  record  made  by  the  private 
banking  institutions  of  this  period,  notwithstanding  the 
illegality  of  the  note  issues  of  some  of  them,  is  very  much 
more  creditable  than  that  made  by  the  elaborately  safe- 
guarded state  institutions. 

274Chicago  American,  September  28,  1841. 
275Andreas,  History  of  Chicago,  i,  532. 
276Baldwin,  History  of  La  Salle  County,  184. 
271 'Chicago  Democrat  (daily),  February  9,  1852. 
278Knox,  History  of  Banking,  726,  742. 


CHAPTER  V 


The  Free  Banking  System  of  Illinois 

In  commenting  upon  the  situation  which  existed  in 
Illinois  just  after  the  collapse  of  the  banks  in  1842  a  writer 
of  the  time  remarks :  "All  the  banks1  of  Illinois  have  ceased 
to  be.  Their  history  is  brief;  their  story  is  instructive ;  and 
the  lesson  taught  will  long  be  remembered."2  This  state- 
ment could  have  been  applied  with  equal  force  to  a  number 
of  southern  and  western  states  whose  banks  had  failed 
under  similar  circumstances.  In  fact,  the  state  bank  of 
Indiana  was  the  only  conspicuous  success  among  the  pro- 
jects undertaken  or  fostered  by  a  state.3  For  nine  years 
after  the  failure  of  the  Illinois  banks,  the  Indiana  bank 
currency  furnished  that  part  of  the  circulating  medium 
Avhich  was  considered  both  sound  and  lawful.  A  con- 
siderable amount  of  paper  from  other  states,  especially 
Michigan,  was  of  unquestionable  legality  but  of  very  doubt- 
ful soundness;  while  the  issues  of  the  Wisconsin  Marine 
and  Fire  Insurance  Company  and  other  similar  institutions 
made  up  in  soundness  what  they  lacked  in  legality.4 

The  presence  of  such  an  assortment  of  money  of  all 
degrees  of  goodness  made  it  necessary  for  persons  handling 
it  in  business  houses  to  be  supplied  with  "bank  note  re- 
porters," "counterfeit  detectors"  and  other  similar  publi- 
cations, while  the  general  public  relied  upon  the  money 
tables  published  in  the  newspapers.5 

In  so  far  as  the  banking  functions  other  than  note  is- 
sue were  concerned,  they  were  performed  by  the  private 
banking  firms  which  had  sprung  up  in  all  the  principal 

1This  refers  to  the  regularly  incorporated  banks  of  issue.   There  were 
a  number  of  private  banking  firms  in  the  state. 
2Brown,  History  of  Illinois,  428. 
3White,  Money  and  Banking,  333. 

^Chicago  Democrat,  January  15,  1845;  Bankers'  Magazine,  iii,  724. 
5Niles  Register,  Ixviii,  272. 

131 


132  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [490 

towns.  These  establishments  were  subject  to  no  supervi- 
sion by  the  state  and  whenever  the  absence  of  competitors 
permitted  it,  charged  exorbitant  rates  of  interest — the  cus- 
tomary rate  paid  by  a  central  Illinois  cattle  grower,  for 
example,  being  twenty-four  per  cent.6  Those  portions  of 
the  state  adjacent  to  Chicago,  St.  Louis  or  Vincennes  were 
more  fortunate,  however,  and  secured  accommodations  at 
reasonable  rates,  but  at  best  the  situation  in  the  state  was 
satisfactory  neither  to  the  bankers  nor  the  public.  Deposit 
banking  was  practiced  by  an  inconsequential  minority, 
hence  the  private  bankers,  under  the  necessity  of  paying 
out  currency  to  borrowers,  either  violated  the  law  by  issu- 
ing their  own  paper  or  confined  themselves  to  lending  the 
notes  of  other  banks,  while  the  public  was  subjected  to  a 
constant  risk  in  using  a  conglomeration  of  bank  bills  of 
uncertain  value.  In  the  campaign  of  1846  two  radically 
different  remedies,  both  involving  changes  in  the  state  con- 
stitution, were  proposed  by  the  two  political  parties.  The 
Whigs  favored  the  adoption  of  a  general  banking  law  under 
which  banks  of  issue  could  be  chartered  which  would  pro- 
vide the  people  of  the  state  with  a  plentiful  supply  of  safe 
currency.  The  Democrats,  on  the  other  hand,  contended 
that  in  view  of  the  unhappy  experiences  of  the  past  both 
banks  and  bank  paper  should  be  forever  banished  from  the 
state.  They  argued  that  the  ideal  monetary  situation, 
namely,  the  exclusive  use  of  specie,  could  never  be  brought 
about  so  long  as  paper  money  was  allowed  to  circulate.7 
In  his  campaign  speeches,  Mr.  Killpatrick,  the  Whig  candi- 
date for  governor,  took  the  position  that  it  was  a  great 
injustice  to  the  business  of  the  state  that  Illinois  should  be 
the  only  state  in  the  Union  without  banks  of  issue.  He 
pointed  out  to  the  voters  the  economic  ills  growing  out  of 
the  use  of  foreign  bank  notes,  the  chief  of  which  was  that 
the  people  of  Illinois  were  bearing  the  loss  attendant  upon 
the  use  of  such  paper  without  receiving  accommodation  at 
the  banks  which  issued  it.  As  for  the  establishment  of  an 
-exclusive  specie  system  of  money,  Mr.  Killpatrick  argued 

6Prince  and  Burnham,  History  of  McLean  County,  ii,  760. 
7 Alton  Telegraph,  January  24,  1846. 


491] 


THE  FREE  BANK  SYSTEM 


133 


that  no  law  ever  enacted  could  prevent  the  circulation  of 
bank  notes  to  the  exclusion  of  specie.8  The  Democrats 
nominated  Augustus  C.  French,  an  anti-bank  man,  on  a 
platform  which  declared  that  the  "resuscitation  or  rechar- 
ter  of  any  of  the  old  banks  .  .  .  would  be  disastrous  to  the 
best  interests  of  the  people  of  Illinois"  and  that  "the  cre- 
ation of  any  new  bank  in  Illinois,  either  as  a  state  bank 
or  in  any  other  form  is  uncalled  for  by  the  people."9 

The  Democratic  party  throughout  the  campaign  took 
advantage  of  the  popular  prejudice  against  all  corpora- 
tions. The  average  Illinoisian  looked  upon  the  act  of  incor- 
poration as  a  mere  "loophole  for  knavery"  which  permitted 
the  incorporators  to  do  under  its  protection  things  which 
they  could  not  do  as  private  individuals.  He  believed  that 
the  incorporation  of  a  bank  of  issue  enabled  the  incorpor- 
ators without  money  or  credit  of  their  own  to  reap  a  for- 
tune from  the  resources  of  their  patrons.10  Mr.  French  and 
a  Democratic  legislature  were  chosen  at  the  November  elec- 
tion and  all  hope  of  a  general  banking  act  seemed  to  have 
disappeared.  A  new  field  of  operation,  however,  was  soon 
opened  for  the  friends  of  banks.  The  state  had  long  out- 
grown the  old  constitution  of  1818,  but  none  of  the  efforts 
to  provide  a  new  one  had  thus  far  met  with  success.  At 
length  the  proposition  to  hold  a  constitutional  convention 
passed  the  legislature,  was  submitted  to  the  people  and 
received  the  support  of  the  voters  of  both  parties.  The 
convention  was  in  the  hands  of  the  Democrats,  "nineteen- 
twentieths"11  of  whom  were  supposed  to  be  opposed  to  all 
banks,  and  yet  a  pro-bank  Democrat  was  made  president  of 
the  convention  and  every  effort  to  force  the  adoption  of 
constitutional  prohibition  of  banks  met  with  defeat.12 

8AUon  Telegraph,  July  4,  1846. 
^Chicago  Democrat,  March  10,  1846. 
10Chicago  Democrat,  October  28,  1845. 

^Illinois  State  Register,  quoted  by  Illinois  State  Journal,  November  9, 
1857. 

12 Alton  Telegraph,  June  29,  and  July  9,  1847;  Niles'  Register,  lxxii, 
307;  Chicago  Democrat,  June  29,  1847;  Jacksonville  Prairie  Argus,  quoted 
by  Alton  Telegraph,  July  16,  1847. 


134  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [492 


The  constitution  was  completed  on  the  last  day  of 
August,  1847,  and  the  following  March  was  submitted  to 
the  people  and  adopted  by  a  large  majority.  The  follow- 
ing sections  relating  to  banking  were  included  in  the  article 
dealing  with  corporations:12 

"No  state  bank  shall  hereafter  be  created,  nor  shall  the 
state  own  or  be  liable  for  any  stock  in  any  corporation  or 
joint  stock  association  for  banking  purposes,  to  be  here- 
after created. 

"The  stockholders  in  every  corporation,  or  joint  stock 
association  for  banking  purposes,  issuing  bank  notes,  or 
any  kind  of  paper  credits  to  circulate  as  money,  shall  be 
individually  responsible,14  to  the  amount  of  their  respective 
share  or  shares  of  stock  in  any  such  corporation  or  asso- 
ciation, for  all  its  debts  and  liabilities  of  every  kind. 

"No  act  of  the  general  assembly,  authorizing  corpora- 
rations  or  associations  with  banking  powers,15  shall  go  into 
effect,  or  in  manner  be  in  force  unless  the  same  shall  be 
submitted  to  the  people  at  the  general  election  next  suc- 
ceeding the  passage  of  the  same  and  be  approved  by  a  ma- 
jority of  all  the  votes  cast  at  such  election  for  and  against 
such  law.16 

The  Democratic  party  still  refused  to  commit  itself  in 
favor  of  a  banking  law  and.  at  its  convention  in  1848  re- 
nominated Governor  French  on  a  platform  which  did  "re- 
newedly  declare"  the  party's  opposition  to  all  banks  and 
advocated  the  expulsion  of  paper  money  from  the  state.17 

13Article  X,  Sections  3,  4  and  5 ;  see  Journal  of  Constitutional  Conven- 
tion, 1847,  p.  564. 

14To  all  the  creditors  of  the  bank.  Decision  of  the  supreme  court  of 
Illinois  in  McCarthy  vs.  Lavasche.   89  Illinois,  270. 

15The  supreme  court  of  Illinois  in  the  case  of  Anthony  vs.  Intern. 
Bank  (93  Illinois,  225)  and  also  in  People  vs.  Lowenthal  (93  Illinois,  191) 
held  that  "banking  powers"  meant  full  banking  powers  and  that  an  act  of 
incorporation  granting  all  the  usual  powers  of  a  bank  except  that  of  note 
issue  was  not  a  banking  act  and  need  not  be  submitted  to  the  voters. 

16In  the  case  of  Smith  vs.  Ryan  (34  Illinois,  364)  it  was  held  that 
minor  amendments  to  a  banking  law  already  approved  by  the  people  need 
not  be  submitted. 

17Illinois  State  Journal,  May  4,  1858. 


493] 


THE  FREE  BANK  SYSTEM 


135 


The  Whigs  still  looked  to  a  central  bank  as  the  true  remedy 
for  the  currency  ills  of  the  nation,  but  as  a  measure  of  ex- 
pediency they  were  willing  to  adopt  any  sound  system  of 
local  banks  so  long  as  there  was  no  prospect  of  securing 
a  third  United  States  Bank. 

Governor  French  was  re-elected  and  when  the  first 
legislature  chosen  under  the  new  constitution  assembled, 
January  1,  1848,  he  announced  his  intention  of  using  his 
newly  acquired  veto  power,  if  necessary,  to  prevent  the 
adoption  of  a  general  banking  act.18  Such  action  on  his 
part  did  not  become  necessary,  for  the  only  bill  introduced 
met  an  untimely  end  in  the  lower  house.79 

Now  that  the  constitution  permitted  the  chartering  of 
banks,  the  business  men  of  the  state  began  a  determined 
fight  to  secure  favorable  action  from  the  next  legislature. 
Just  before  the  opening  of  the  next  session  of  that  body, 
a  convention  was  held  in  Chicago  at  which  the  representa- 
tives of  the  leading  commercial  and  financial  interests  of 
the  state  drafted  a  memorial  to  the  legislature  and  the  gov- 
ernor urging  them  to  abandon  their  attitude  of  hostility 
to  banks  and  to  provide  the  state  with  a  system  of  banking 
adequate  to  its  needs.40  This  time  the  appeal  met  with 
success  as  far  as  the  legislature  was  concerned  and  a  gen- 
eral banking  system  was  passed  for  submission  to  the  vot- 
ers at  the  next  general  election. 

The  act  was  patterned  after  the  free  banking  system 
of  New  York  and  provided  that  the  auditor  of  public  ac- 
counts should  obtain  a  supply  of  circulating  notes  to  be 
issued  to  persons  complying  with  its  provisions.  Each  of 
these  notes  was  to  be  signed  and  numbered  by  the  auditor 
and  the  number  entered  upon  an  official  register.  Any 
person  or  persons  who  desired  to  engage  in  the  issue  of 
notes  was  required  to  deposit  with  the  auditor  bonds  issued 
(1)  by  the  United  States,  (2)  by  any  state  which  paid  full 
interest  or  (3)  by  the  state  of  Illinois.   The  deposit  of  the 


18Senate  Journal,  1849,  pp.  11  ff. 
19House  Journal,  1849,  PP-  58,  73. 

20Harper  and  Ravell,  Fifty  Years  of  Banking  in  Chicago,  83. 


136  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [494 

first  two  classes  of  bonds  entitled  the  owner  to  receive  from 
the  auditor  circulating  notes  to  the  full  market  value  of 
the  bonds  but  not  to  exceed  their  par  value;  but  Illinois 
securities  must  be  listed  at  twenty  per  cent  less  than  their 
average  market  value  in  New  York  during  the  preceding 
six  weeks.  If  any  state  failed  to  pay  regularly  six  per 
cent  interest  on  its  bonds,  the  auditor  was  required  to  de- 
mand at  least  two  dollars  of  its  bonds  for  every  dollar  in 
notes  issued  to  the  depositor.  The  securities  were  all  listed 
in  triplicate,  each  list  being  signed  by  the  auditor  and  the 
depositors  of  the  bonds.  One  of  the  lists  was  kept  in  the 
state  treasurer's  office,  one  was  retained  by  the  auditor 
and  the  third  was  given  to  the  person  making  the  deposit.21 
The  privilege  of  forming  a  banking  association  was 
open  to  any  number  of  persons  but  a  minimum  of  fifty 
thousand  dollars'  worth  of  capital  stock  must  be  sold  before 
beginning  business.  The  certificate  of  incorporation  grant- 
ed to  such  associations  specified  the  corporate  name,  place 
of  business,  amount  of  capital  stock,  the  names  and  resi- 
dence of  stockholders  and  the  number  of  shares  held  by 
each.  This  certificate  entitled  the  holders  to  discount  bills 
and  notes,  receive  deposits,  buy  gold  and  silver  coin  and 
bills  of  exchange,  lend  money  on  real  estate  and  personal 
security,  and  circulate  their  notes  as  money.22  If,  however, 
a  banking  association  failed  to  redeem  its  notes  on  demand, 
the  auditor  was  required  after  giving  notice  for  ten  days 
in  two  New  York  City  newspapers,  to  sell  enough  of  the 
bonds  deposited  by  the  association  to  enable  him  to  redeem 
the  notes  out  of  the  proceeds  of  the  sale,  but  in  no  case 
could  the  state  of  Illinois  be  held  liable  for  the  redemption 
of  a  bank's  paper.23  If  any  note  holder  chose  to  do  so,  he 
could  cause  a  bank  to  be  put  into  liquidation  because  of 
its  failure  to  redeem  its  paper.  The  procedure  prescribed 
was  as  follows :  The  note  was  to  be  "protested"  by  a  notary 
public  and  the  protest  sent  to  the  auditor  who  in  turn  was 


21Laws  of  Illinois,  1851,  p.  163,  Sections  2  and  3. 
—Ibid.,  Sections  4  and  9. 
23Ibid.,  Section  14. 


495] 


THE  FREE  BANK  SYSTEM 


137 


to  notify  the  officers  of  the  bank  to  pay  the  obligation  in 
question  at  once.  If  they  failed  to  do  so,  the  auditor  was 
to  insert  a  notice  in  one  Springfield  paper  and  one  paper 
in  the  place  where  the  bank  was  located,  to  the  effect  that 
he  would  redeem  and  retire  all  the  notes  of  the  bank.  The 
association  was  then  to  cease  doing  business  except  for  the 
purpose  of  settling  its  affairs  under  the  direction  of  a  re- 
ceiver appointed  by  the  courts.  All  assets  were  to  be  ap- 
plied (1)  to  the  redemption  of  notes,  (2)  to  the  payment  of 
all  liabilities  other  than  capital  stock  and  (3)  to  reimburse 
the  shareholders.24  The  stockholders  were  all  to  be  held 
individually  responsible  for  the  debts  of  the  bank  to  an  J 
amount  equal  to  their  respective  holdings  and  the  courts 
were  authorized  to  issue  execution  against  each  stockholder 
in  succession  until  the  full  amount  of  the  judgment  was 
obtained.25  Any  note  upon  which  payment  had  been  re- 
fused drew  interest  at  the  rate  of  twelve  and  one-half  per 
cent  until  paid.26  Notes  were  redeemable  only  at  the  place 
of  business  mentioned  in  the  charter,  and  sufficient  specie 
must  be  kept  on  hand  for  their  redemption.27  If  the  auditor 
or  a  group  of  shareholders  whose  holdings  aggregated  three 
thousand  dollars  desired  an  investigation  of  a  bank's  af- 
fairs, the  circuit  judge  of  the  county  in  which  the  bank 
was  located  was  required  to  institute  such  an  investigation 
and  to  publish  his  findings  together  with  his  opinion  as  to 
the  wisdom  and  honesty  of  the  bank's  management.28 

The  general  supervision  of  the  new  system  was  placed 
in  the  hands  of  three  bank  commissioners  whose  duties  con- 
sisted in  examining  the  affairs  of  every  incorporated  bank 
at  least  once  a  year  and  in  inspecting  the  bonds  on  deposit 
with  the  auditor.  In  case  there  was  a  shrinkage  in  the  value 
of  any  securities  to  such  an  extent  that  they  no  longer  fur- 
nished adequate  protection  to  the  note  holder,  the  bank 
was  required  to  deposit  additional  bonds  or  withdraw  a 

2*Laws  of  Illinois,  1851,  pp.  163  ff.,  Sections  14  and  18. 
25Ibid.,  Section  28. 
2QIbid.,  Section  18. 
21Ibid.,  Section  19. 
2SIbid.,  Section  25. 


138         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [496 

portion  of  its  notes  from  circulation.  As  an  additional 
safeguard,  a  quarterly  statement  was  required  from  every 
incorporated  bank,  a  copy  of  which  must  be  published  in  a 
local  newspaper.29 

Although  the  current  rate  of  interest  was  ten  per  cent, 
the  legislature  restricted  the  banks  to  a  rate  of  seven  per 
cent,  thereby  compelling  them  to  evade  the  law  in  order  to 
secure  the  current  rate.30 

The  bill  was  sent  to  Governor  French  who  returned  it 
with  a  vigorous  veto  message  in  which  he  noted  the  follow- 
ing objections  to  the  measure:  (1)  The  bill  should  have 
provided  that  a  definite  minimum  amount  of  gold  and  silver 
T)e  kept  on  hand  for  the  redemption  of  notes.  (2)  Instead 
of  a  mere  double  liability  provision  the  measure  should 
have  required  that  every  stockholder  be  liable  to  the  full 
amount  of  his  private  property.  (3)  A  bond  was  a  mere 
evidence  of  indebtedness  itself  and  was  not  a  proper  basis 
for  the  creation  of  further  evidences  of  indebtedness.  If 
a  bond  were  worth  its  face  value  in  gold  then  why  not  per- 
mit the  banks  to  deposit  the  gold  itself  as  security  for  their 
notes  instead  of  resorting  to  a  roundabout  method  which 
amounted  to  the  same  thing?  On  the  other  hand  if  the 
bonds  were  not  as  good  as  gold,  then  they  did  not  provide 
adequate  security  for  the  notes.  (4)  A  bank  could  incorpo- 
rate under  the  provisions  of  this  bill  and  instead  of  issuing 
notes  based  upon  securities  could  act  as  the  agent  for  some 
foreign  "wild  cat1'  enterprise.  (5)  The  New  York  system 
upon  which  the  Illinois  banking  law  was  modeled  could  not 
be  pronounced  a  success  since  it  had  not  yet  been  called 
upon  to  weather  a  severe  crisis.31 

The  same  influences,  however,  which  had  forced  the 
original  passage  of  the  act  again  prevailed  and  it  was  re- 
passed over  the  governor's  veto.32  It  was  now  necessary 
that  the  measure  should  receive  the  approval  of  the  voters 
at  a  general  election  before  it  could  become  effective.  The 

29Lazvs  of  Illinois,  1851,  pp.  163  ff.,  Section  34. 
30Ibid.,  Section  38. 

31Reports  of  Session  (H.  of  R.),  1851,  p.  493. 
^-Chicago  Daily  Democrat,  February  22,  1851. 


497] 


THE  FREE  BANK  SYSTEM 


139 


next  general  election  would  have  occurred  in  November, 
1852,  but  the  legislature  deprived  all  the  county  treasurers 
of  their  offices  and  provided  that  their  successors  should 
be  elected  in  1851.  This  change  in  the  law  made  it  possible 
to  submit  the  measure  a  year  earlier.33  In  spite  of  the 
light  vote  and  the  hostility  of  the  Democratic  newspapers, 
the  law  was  adopted  by  a  substantial  majority.34 

Although  the  system  provided  was  an  improvement 
over  the  chaotic  conditions  of  the  past,  there  was  ample 
room  for  abuses  to  creep  in  and  the  experience  of  subse- 
quent years  shows  that  unscrupulous  persons  made  the 
most  of  these  defects  in  the  law.  Banks  could  issue  an  un- 
limited amount  of  currency  without  reference  to  the  needs 
of  the  community  so  long  as  the  requisite  amount  of  securi- 
ties was  deposited  with  the  auditor.  The  place  of  issue 
named  on  the  notes  could  be  located  in  the  most  inaccessible 
portion  of  the  state  and  the  notes  circulated  as  far  as  possi- 
ble from  it.  Finally,  there  was  no  provision  made  for  the 
actual  payment  of  a  dollar  of  the  fifty  thousand  dollars' 
worth  of  capital  stock  prescribed  as  a  minimum. 

Notwithstanding  the  ease  with  which  bonds  could  be 
obtained  and  circulating  notes  received  there  was  not  a 
single  application  filed  with  the  auditor  for  several  months 
after  the  passage  of  the  act,  a  fact  which  led  the  editor  of 
the  Chicago  Democrat,  an  opponent  of  the  system,  to  boast 
that  the  law  would  soon  become  a  dead  letter.35  The  aud- 
itor had  signified  his  willingness  to  issue  bank  notes  to  the 
full  value  of  any  six  per  cent  bonds  of  the  United  States 
or  the  states  of  New  York,  Ohio,  Kentucky  and  Virginia, 
none  of  which  was  quoted  at  less  than  106  on  the  New 
York  stock  market.  He  also  offered  to  receive  Illinois 
securities  at  eighty  per  cent  of  their  market  price.36  It  was 
the  stringency  of  these  bond  deposit  provisions  of  the  act 

zzLaws  of  Illinois,  1851,  p.  144. 
34Memoirs  of  Gustave  Koerner,  i,  564. 
S5Chicago  Daily  Democrat,  January  28,  1852. 

^Thompson's  Bank  Note  Reporter,  quoted  in  the  Chicago  Tribune, 
February  13,  1852. 


140  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [498 


which  discouraged  the  formation  of  banking  associations 
by  even  those  bankers  who  had  favored  the  passage  of  the 
general  law.37 

During  the  course  of  the  year  1852,  however,  seventeen 
banks  were  organized  in  various  parts  of  the  state  and 
deposited  bonds  with  a  market  value  of  f 1,649,100,  in  re- 
turn for  which  they  were  permitted  to  receive  $1,142,544.83 
in  notes.  Of  this  amount,  $1,129,622  was  actually  in  cir- 
culation at  the  close  of  the  year.38  In  the  case  of  several 
of  the  new  associations  the  business  of  a  private  firm  was 
taken  over  and  the  lawful  bank  notes  substituted  for  illegal 
issues.39  On  the  other  hand,  some  of  the  private  bankers 
were  so  audacious  as  to  issue  "shin  plasters"  with  which 
to  buy  bonds  for  the  purpose  of  obtaining  lawful  currency 
from  the  auditor.  In  fact,  several  Chicago  institutions 
after  becoming  incorporated  are  said  to  have  prepared  an 
issue  of  illegal  notes  exactly  like  their  legal  issue  and  to 
have  paid  out  the  two  kinds  indiscriminately.40 

The  law  abiding  bankers  were  determined  to  rid  the 
state  of  illegal  currency,  but  met  with  little  success  in  their 
efforts  to  discredit  such  universally  acceptable  paper  as 
that  of  George  Smith.  Moreover,  the  law  compelled  them 
to  redeem  their  notes  at  par  while  Smith  continued  to 
charge  a  one  per  cent  premium  for  gold.  Consequently, 
Smith's  paper  continued  to  circulate  without  interruption 
while  the  notes  of  the  incorporated  banks  were  constantly 
presented  for  redemption.  At  length  the  incorporated 
banking  associations  appealed  to  the  courts  (December, 
1852)  and  secured  indictments  (against  six  banks  and 
George  Smith's  firm,  the  Wisconsin  Marine  and  Fire  Insur- 
ance Company.41  The  cases  dragged  through  the  courts 
and  were  eventually  abandoned  but  the  efforts  of  the  bank- 
ing associations  in  another  quarter  were  more  successful. 

37Bross,  History  of  Chicago,  42. 

ssBiennial  Report  of  the  Auditor  of  Public  Accounts,  1853,  p.  24. 
39Andreas,  History  of  Chicago,  i,  534. 
^Chicago  Democrat,  May  2,  1852,  September  3,  1852. 
^Ibid.,  December  25,  1852.   This  effort  to  stamp  out  illegal  note  issue 
was  known  as  "the  bank  war." 


499] 


THE  FREE  BANK  SYSTEM 


141 


When  the  legislature  met  in  1853  pressure  was  brought 
to  bear  both  by  the  stock  bankers  and  the  auditor  to  secure 
an  amendment  to  the  banking  act  which  would  protect 
legitimate  note  issues.42  At  the  same  time,  however,  Gov- 
ernor French  in  his  farewell  message  pronounced  the  law  a 
failure  in  that  instead  of  ridding  the  state  of  "wild  cat" 
currency  it  seemed  to  foster  a  spirit  of  law  breaking.  He 
did  not,  however,  urge  the  repeal  of  the  act,  but  recom- 
mended that  the  defects  in  the  system  be  corrected.43  In  his 
inaugural  address  Governor  Matteson  joined  with  the  aud- 
itor and  the  stock  bankers  in  asking  for  legislation  which 
would  give  the  banking  associations  who  tried  to  obey  the 
law  adequate  protection  against  unauthorized  note  issues.44 
The  legislature  fell  short  of  correcting  all  the  defects 
in  the  original  bank  law,  but  the  supplementary  act  of  1853 
wras  passed  which  afforded  some  relief  to  legitimate  bank- 
ing. The  following  are  the  principal  provisions  of  the  act : 
No  certificate  of  incorporation  could  be  issued  until  at 
least  |50,000  in  bonds  had  actually  been  placed  in  the 
auditor's  hands  and  if  the  amount  of  deposit  should  fall 
below  |50,000  the  bank  ipso  facto  forfeited  its  charter.  A 
heavy  penalty  was  provided  for  the  issue  within  the  state 
of  anything  designed  to  pass  as  money,  other  than  the  bills 
authorized  by  the  general  banking  law.  Foreign  notes  were 
not  allowed  to  be  circulated  unless  they  were  of  a  denom- 
ination of  five  dollars  or  more  and  were  issued  by  a  regu- 
larly authorized  specie  paying  bank  of  a  state,  territory 
or  Canadian  province.45  The  last  named  portion  of  the 
act  was  not  taken  seriously,  although  proceedings  were 
instituted  against  offenders  in  various  parts  of  the  state. 
The  high  premium  on  silver  coins  after  1834  made  it  neces- 
sary to  have  a  large  amount  of  small  bills  to  take  their 
place  and  merchants  and  bankers  continued  to  make  use 
of  foreign  small  notes  in  spite  of  the  heavy  penalty  in- 


^-Reports  of  Session  (Senate),  1853,  p.  33. 
^Senate  Journal,  1853,  p.  14. 
^Reports  of  Session  (Senate),  1853,  p.  23. 
45 Laws  of  Illinois,  1853,  p.  38. 


142  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [500 

volved.  Moreover,  when  a  note  holder  turned  a  small  note 
from  another  state  over  to  a  bank  for  collection  he  was 
compelled  to  submit  to  a  charge  for  this  service  so  that 
most  persons  continued  to  use  the  notes  and  run  the  risk  of 
prosecution.46 

As  a  result  of  the  co-operation  of  the  Board  of  Brokers 
of  New  York  City  with  similar  organizations  in  St.  Louis 
and  Chicago  the  provision  of  the  act  of  1853  against 
unauthorized  domestic  note  issues  was  very  effectively  en- 
forced. The  Wisconsin  Marine  and  Fire  Insurance  Com- 
pany and  similar  institutions  gave  up  the  fight  and  with- 
drew their  notes  from  circulation.47  The  currency  of  the 
stock  banks  came  into  more  general  use  and  for  a  brief  time 
enjoyed  a  good  reputation  both  at  home  and  on  Wall  Street, 
where  it  was  accepted  at  a  discount  of  but  three-fourths  of 
one  per  cent.48 

At  the  time  of  the  bank  commissioners'  report  for  May, 
1854,  thirty-one  banks  had  been  organized,  with  an  author- 
ized capital  of  seventeen  millions  and  securities  in  the 
auditor's  hands  valued  at  $2,650,987.62.  Of  this  amount, 
$1,844,500  worth  consisted  of  the  bonds  of  Virginia,  Geor- 
gia, Missouri,  Ohio,  Wisconsin,  Kentucky  and  Tennessee, 
all  of  which  states  paid  six  per  cent  interest  regularly.  On 
these  bonds,  notes  were  issued  up  to  the  full  par  value. 
The  remainder  of  the  deposits  was  made  up  of  California 
bonds  quoted  at  eighty  cents  on  the  dollar,  on  which  the 
auditor  issued  notes  at  the  rate  of  fifty  cents  on  the  dollar, 
and  of  Illinois  securities  of  various  kinds  and  values,  on 
which  notes  were  issued  to  the  extent  of  eighty  per  cent  of 
the  New  York  stock  market  quotation.  As  far  as  evidences 
of  state  indebtedness  could  be  considered  a  sufficient  secur- 
ity for  bank  note  circulation  the  issues  of  the  Illinois  banks 
seemed  to  be  amply  protected.    In  fact,  with  the  rapid  im- 

46Chicago  Democrat  (weekly),  August  6,  1853;  Bankers  Magazine,  ix, 

102. 

«Ibid.,  vii,  846. 

^Thompson's  Bank  Note  Reporter,  quoted  by  Chicago  Democrat 
(weekly),  April  2,  1853;  Clark's  Counterfeit  Detector,  quoted  by  Bankers 
Magazine,  vii,  846;  New  York  Herald,  cited  in  ibid.,  739. 


501] 


THE  FREE  BANK  SYSTEM 


143 


provement  in  the  credit  of  the  state  there  was  no  longer 
any  reason  for  the  discrimination  against  Illinois  securi- 
ties. 

In  lieu  of  the  regular  tax  assessments  the  stock  banks 
(vere  assessed  by  the  bank  commissioners  upon  loans,  dis 
counts  and  bond  deposits.  When  the  commissioners  called 
upon  the  banks  for  a  statement  as  to  the  amount  of  these 
items,  but  nine  of  the  banks  made  any  return  at  all  upon 
loans  and  discounts,  the  rest  reporting  merely  the  minimum 
of  fifty  thousand  dollars  in  bonds  required  for  incorpora- 
tion. This  singular  state  of  affairs  was  due  to  the  fact  that 
the  latter  banks  as  such  were  not  doing  a  loan  and  discount 
business  at  all.  They  were  incorporated  in  order  to  secure 
the  right  to  issue  notes  and  then  loaned  the  entire  issue 
as  private  brokers  and  not  as  banking  associations.  In 
this  way  the  seven  per  cent  maximum  interest  rate  could  be 
exceeded  and  the  tax  upon  loans  and  discounts  evaded.  In 
fact,  a  sort  of  an  endless  chain  could  be  started  by  first 
obtaining  bonds,  next,  procuring  notes  with  them,  next, 
obtaining  more  bonds  with  the  notes,  and  so  on  as  long  as 
the  association's  ability  to  keep  its  notes  in  circulation 
permitted  the  process  to  continue.  That  this  practice, 
however,  did  not  as  yet  prevail  to  any  considerable  degree 
is  evidenced  by  the  fact  that  but  few  of  the  banks  had  de- 
posited more  than  the  minimum  amount  of  securities.49 

The  commissioners  reported  that  the  notes  of  foreign 
banks  continued  to  furnish  almost  seventy  per  cent  of  the 
entire  volume  of  paper  in  circulation  in  Illinois,  in  spite  of 
the  increased  issues  of  the  stock  banks.  This  situation  they 
accounted  for  in  two  ways :  (1)  Some  Illinois  bankers  had 
put  their  paper  into  circulation  outside  of  the  state  in  order 
to  postpone  the  necessity  of  redeeming  it;  (2)  The  amount 
of  notes  which  the  stock  banks  found  it  profitable  to  issue 
fell  far  short  of  the  total  demand  for  money.50 

Notwithstanding  the  ease  with  which  a  banking  asso- 
ciation could  be  formed,  the  efficient  supervision  of  the  aud- 

49Report  of  Bank  Commissioners,  in  Bankers  Magazine,  ix,  102  ff. 
™Ibid. 


144  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [502 


itor  in  connection  with  the  character  of  securities  offered 
limited  the  number  of  applications  for  charters  and  in- 
spired public  confidence  in  the  system.  During  the  summer 
of  1854,  however,  the  stock  banks  received  their 
first  shock,  which  was  caused  by  a  panic  of  short  duration 
but  characterized  as  the  worst  since  1837.  The  trouble  was 
precipitated  by  a  too  heavy  drain  upon  the  money  market 
I  due  to  extensive  railroad  construction  in  the  Middle  West. 
The  crisis  spread  to  the  stock  market,  with  the  result  that 
Virginia  and  Missouri  bonds,  which  formed  the  larger 
part  of  the  securities  deposited  by  the  Illinois  banks,  fell 
to  ninety-five  and  ninety-three  cents  on  the  dollar,  respect- 
ively. Suddenly  a  feeling  of  distrust  seized  the  holders  of 
Illinois  currency  and  as  a  result  large  amounts  of  it  were 
presented  for  redemption.  The  banks  were  wholly  unpre- 
pared to  meet  their  obligations  and  a  number  were  com- 
pelled to  suspend  specie  payments.51  The  bank  commis- 
sioners sought  to  allay  the  feeling  against  the  stock  bank 
notes  by  assuring  the  note  holders  that  every  bill  Avas  amply 
secured  and  that  no  one  need  sustain  any  loss.  The  process 
of  waiting  for  the  auditor  to  dispose  of  securities  in  New 
York  and  then  call  in  the  bills  for  redemption  was  too  se- 
vere a  tax  upon  the  patience  and  comprehension  of  many 
persons,  who  disposed  of  their  notes  to  brokers  at  a  heavy 
discount.52 

In  their  report  for  January,  1855,  the  bank  commission- 
ers indicated  to  the  legislature  the  necessity  of  eliminating 
at  least  two  weak  points  in  the  general  banking  law:  (1) 
\  The  abolition  of  the  seven  per  cent  maximum  interest  rate, 
so  that  the  banks  would  be  induced  to  carry  on  their  busi- 
ness in  a  regular  and  legal  manner  ;  (2)  The  requirement 
that  a  definite  minimum  amount  of  specie  be  kept  on  hand 
for  purposes  of  note  redemption.53  The  legislature,  how- 
ever, made  but  one  slight  change  in  the  banking  law  of  1851 
and  that  had  to  do  with  facilitating  the  retirement  of  the 


51Bankers  Magazine,  ix,  493. 
52Ibid. 

53Report  of  Bank  Commissioners,  in  Bankers  Magazine,  ix,  751. 


503] 


THE  FREE  BANK  SYSTEM 


145 


notes  of  banks  in  liquidation.  Any  association  which  was 
about  to  retire  its  notes  and  wind  up  its  affairs  was  re- 
quired to  certify  this  fact  to  the  auditor.  It  was  then  en- 
titled to  receive  from  him  a  proper  proportion  of  its  securi- 
ties in  return  for  every  f 1000  package  of  notes  forwarded 
to  him.  If  the  association  desired  to  go  out  of  business 
before  all  its  notes  were  redeemed  it  must  deposit  with  the 
auditor  sufficient  specie  to  cover  all  the  outstanding  issue.54 

The  auditor's  report  for  the  biennium  ending  Novem- 
ber 30, 1854,  showed  that  the  banks  had  made  a  fairly  good 
recovery  from  the  effects  of  the  panic.  Three  of  them  had 
closed  their  doors  permanently,  while  five  of  the  remaining 
thirty-two  institutions  were  still  in  a  state  of  suspension 
but  had  not  yet  been  forced  into  liquidation.  The  total 
circulation  then  outstanding  amounted  to  $2,649,341,  as 
security  for  which  there  were  on  deposit  state  bonds  valued 
at  $3,170,529.55. 

The  five  banks  which  had  not  yet  resumed  specie  pay- 
ments were  notified  that  if  they  did  not  do  so  within 
sixteen  days  after  the  passage  of  the  supplementary  act  of 
1855  their  portion  of  the  securities  on  deposit  would  be 
sold  by  the  auditor  and  their  notes  redeemed  at  his  office. 
They  were  unable  to  comply  with  the  notice  and  were 
compelled  to  close  their  doors.55 

The  number  of  banks  and  the  amount  of  notes  out- 
standing continued  to  increase  until  in  1856  there  was  a 
total  of  $6,480,873  outstanding,  an  increase  of  fifty  per  cent 
over  1854.56  In  spite  of  this  fact,  the  Illinois  stock  bank 
notes  formed  the  minor  part  of  the  circulating  medium  of 
the  state.  As  an  illustration  of  the  varied  character  of  the 
money  in  use  in  Illinois  in  1855-56,  Andreas  cites  the  case 
of  a  conductor  on  the  Chicago,  Burlington  and  Quincy 
Railroad  who  on  collecting  $203  from  his  passengers  re- 
ceived the  notes  of  twenty-three  different  banks.  Of  this 
amount,  all  but  $21  was  the  issue  of  banks  outside  of 


54Laws  of  Illinois,  1855,  p.  32. 

^Bankers  Magazine,  ix,  822. 

™Re ports  of  Session  (Senate),  1857,  p.  139. 


146         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [504 


Illinois,  $115,  or  more  than  half,  being  the  notes  of  Geor- 
gia banks.57 

The  predominance  of  Georgia  paper  was  not  a  mere 
accident,  but  was  due  to  the  fact  that  several  banks  in  that 
state  were  owned  by  citizens  of  Chicago.  After  the  passage 
of  the  act  of  1853,  and  the  successful  campaign  against 
illegal  note  issue,  George  Smith  had  opened  two  banks  in 
Georgia  for  the  sole  purpose  of  furnishing  notes  for  circu- 
lation in  the  territory  tributary  to  Chicago,  unhampered 
by  bond  deposit  restrictions.58  In  like  manner  Preston  and 
Company  of  Chicago  issued  from  their  office  in  that  city 
the  notes  of  their  bank  at  Dalton,  Georgia.  Both  the 
Smith  and  the  Preston  notes  were  in  great  demand,  being 
convertible  into  eastern  exchange  at  three-fourths  of  one 
per  cent  and  into  gold  at  one  per  cent  upon  being  presented 
at  the  Chicago  offices  of  the  banks.59  The  stock  bankers 
of  Chicago  did  all  in  their  power  to  drive  the  Georgia  banks 
out  of  existence.  At  one  time  they  kept  up  a  continuous 
run  for  four  months  and  presented  a  total  of  two  million 
dollars  for  redemption.  On  another  occasion  Elihu  B. 
Washburne  was  sent  to  Georgia  with  a  large  quantity  of 
notes,  for  the  purpose  of  driving  the  Smith  banks  out  of 
business,  but  they  succeeded  in  redeeming  the  whole 
amount  presented.60  Unfortunately  there  was  much  paper 
issued  in  the  South  which  was  not  so  easily  redeemable. 
The  fact  that  the  Smith  paper  bore  so  good  a  reputation 
encouraged  the  issue  of  "wild  cat"  imitations  of  it.  The 
business  men  of  Chicago,  being  the  worst  sufferers  from 
the  notes,  united  in  an  appeal  to  the  banks  to  stop  handling 
Georgia  paper  of  all  kinds.  Some  of  the  banks  agreed  to 
co-operate  in  the  matter  but  the  rest  were  too  heavily 
involved  in  one  way  or  another  to  admit  of  their  doing 
likewise.61    By  1858,  however,  the  business  of  issuing  and 

57Andreas,  History  of  Chicago,  i,  547. 

58Andreas  gives  a  detailed  account  of  George  Smith's  various  activi- 
ties; see  i,  547,  ii,  617  et  passim. 

^Chicago  Daily  Democratic  Press,  January  6,  1856. 
60Andreas,  History  of  Chicago,  ii,  617. 
61Ibid.,  i,  546;  Bankers  Magazine,  ix,  572. 


505] 


THE  FREE  BANK  SYSTEM 


147 


lending  notes  had  ceased  to  yield  the  large  returns  of  for- 
mer days  and  Smith  retired  his  large  Georgia  issues  and 
returned  to  Scotland. 

Agencies  similar  to  those  maintained  in  Chicago  were 
maintained  by  several  Nebraska  banks  in  Galesburg,  Pe- 
oria, Macomb  and  other  cities  and  villages,  the  difference 
being  that  the  western  currency  was  wholly  unreliable.  A 
favorite  scheme  of  these  frontier  institutions  was  to  per- 
suade a  number  of  persons  in  Illinois  to  take  stock  in  the 
enterprise  and  thereby  obtain  the  right  to  a  certain  amount 
of  its  bank  notes.  These  notes  the  stockholder  could  use 
as  he  saw  fit,  but  he  became  personally  liable  for  their 
redemption.  For  a  time  the  various  stockholders,  by  agree- 
ing to  circulate  one  another's  notes,  succeeded  in  keepings 
them  in  circulation,  but  the  crisis  of  1857  put  an  end  to 
"Brownville,"  "Platte  Valley,"  "Nehama  Valley"  and  other 
similar  "wild  cat"  issues  and  left  a  number  of  hitherto 
prosperous  Illinois  farmers  and  merchants  the  wiser  and 
poorer  for  the  experience  they  had  had.62 

In  his  report  for  November  30, 1856,  the  auditor  stated 
that  since  the  passage  of  the  amendment  of  1855  requiring 
banks  to  file  notice  of  their  intention  to  retire  from  busi- 
ness, nine  banks  had  taken  such  action.  Three  of  them  had 
done  so  of  their  own  free  will  and  had  retired  their  notes, 
or  deposited  with  the  auditor  sufficient  specie  for  their; 
redemption.  The  rest  had  been  forced  to  go  out  of  business 
for  failing  to  redeem  their  notes.  The  |6,500,000  in  out- 
standing notes  was  secured  by  bonds  with  a  par  value  of 
17,645,590.24  and  an  estimated  cash  value  of  |6,663,389. 
The  system  had  been  in  operation  for  five  years  and  up  to 
that  time  the  bonds  in  the  auditor's  possession  had  proved 
to  be  more  than  adequate  for  the  redemption  of  the  out- 
standing notes.63  However,  the  new  governor,  Mr.  Bissell, 
did  not  believe  that  this  showing  was  any  criterion  as  to 
the  future  of  the  stock  banks.   He  granted  that  thus  far  the 

62Gale  and  Gale,  History  of  Knox  County,  6/8;  Clarke,  History  of 
McDonough  County,  161 ;  Rice,  History  of  Peoria  County,  i,  448. 
Q3Re ports  of  Session  (Senate),  1857,  p.  50. 


148  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [506 


system  had  come  up  to  all  reasonable  expectations  but  he 
expressed  the  fear  lest  in  time  of  great  financial  distress, 
the  holders  of  notes  would  suffer  a  heavy  loss.64 

More  than  two-thirds  of  the  notes  of  the  Illinois  banks 
were  secured  by  Missouri  state  bonds  and  the  fact  that  that 
state  was  suffering  from  an  internal  improvement  mania 
similar  to  the  one  which  seized  the  State  of  Illinois  about 
twenty  years  before  caused  considerable  alarm.  The  pub- 
lic debt  of  Missouri  already  exceeded  nineteen  millions  and 
the  legislature  was  contemplating  an  additional  bond  issue 
of  several  millions,  an  act  which  would  inevitably  bring 
about  a  marked  decline  in  the  value  of  the  securities 
already  outstanding.63  Moreover,  in  addition  to  this 
threatened  danger  to  the  stock  banking  system,  several  of 
the  influences  which  led  to  the  commercial  disasters  of  the 
year  1857  and  1858  were  already  in  evidence.  By  Febru- 
ary, 1857,  five  of  the  downstate  banks  were  in  so  precarious 
a  condition  from  over-expansion  of  loans  and  discounts 
that  Chicago  and  St.  Louis  brokers  flatly  refused  to  accept 
their  notes.  A  period  of  prosperity  and  expansion  of  busi- 
ness activities  had  led  to  excessive  issues  of  notes  and  too 
little  scrutiny  of  the  security  offered  by  borrowers.66 
Nearly  all  the  stock  banks  hastened  to  retire  a  part  of  their 
note  issue  in  order  to  fortify  themselves  against  the 
approaching  storm.  As  a  result  of  their  action,  the  out- 
standing circulation  was  reduced  from  $6,480,000  on  Janu- 
ary 1,  to  $5,500,000  on  March  24,  1857.67 

The  legislature,  then  in  session,  corrected  some  more 
of  the  defects  in  the  banking  law  by  enacting  the  amend- 
ment of  February  14,  1857.  It  was  specified  that  every 
incorporated  banking  house  must  do  business  solely  in  the 
name  of  the  bank  and  at  the  place  named  on  its  notes  and 
in  the  certificate  of  organization.  The  practice  of  locating 
banks  in  inaccessible  spots  was  forbidden  by  a  clause 
requiring  that  the  office  of  a  bank  must  be  situated  in  a 

&4Reports  of  Session  (Senate),  1857,  p.  20. 
^Illinois  State  Journal,  January  19,  20,  1857. 
^Bankers  Magazine,  xi,  622,  827. 
^Illinois  State  Journal,  March  25,  1857. 


507] 


THE  FREE  BANK  SYSTEM 


149 


settlement  containing  not  less  than  two  hundred  persons. 
This  provision  was  aimed  at  such  institutions  as  the  Bank 
of  Southern  Illinois  which  had  been  established  at  Bolton, 
a  town  containing  but  one  family  and  located  in  an  out 
of  the  way  part  of  Williamson  County.  Banks  of  this 
kind  issued  their  notes  in  more  populous  parts  of  the  state 
with  the  assurance  that  few  persons  would  ever  take  the 
pains  to  present  them  at  the  bank  for  redemption.68  The 
act  also  definitely  prohibited  the  practice  of  "wearing  out" 
persons  presenting  notes  for  redemption.  Some  banks  in 
order  to  discourage  the  return  of  their  notes  in  any  con- 
siderable quantity  compelled  the  note  holder  to  present  his 
bills  one  at  a  time  and  received  payment  in  small  change. 
Thereafter,  if  a  person  presenting  a  note  for  redemption 
were  accorded  such  treatment,  he  could  have  the  notes 
"protested"  by  a  notary  and  mail  it  to  the  auditor  who  was 
required  to  place  the  bank  in  liquidation  if  it  refused  to 
make  full  payment  to  the  noteholder  within  ten  days.  The 
practice  of  starting  a  stock  bank  by  merely  borrowing  the 
requisite  amount  of  securities  and  paying  for  them  with 
the  notes  received  in  exchange  for  them  was  brought  to  an 
end  by  a  provision  that  no  more  charters  were  to  be  granted 
until  the  auditor  had  been  convinced  that  there  had  been 
paid  into  the  bank  a  bona  fide  cash  capital  of  fifty  thousand 
dollars.  As  an  encouragement  to  legitimate  banking  the 
legal  rate  of  interest  that  might  be  charged  by  stock  banks 
was  increased  from  seven  to  ten  per  cent.  Finally,  the 
amendment  put  the  bonds  of  Illinois  and  those  of  other 
states  which  paid  six  per  cent  interest  regularly  upon  the 
same  footing.  Thereafter  notes  would  be  issued  up  to 
ninety  per  cent  of  the  actual  market  value  of  any  stock 
placed  on  deposit.  This  provision,  while  it  increased  ma- 
terially the  margin  of  security  behind  the  notes  of  banks 
depositing  the  bonds  of  other  states,  at  the  same  time 
removed  the  unreasonable  discrimination  which  had 
existed  against  the  securities  of  Illinois.69 

68Cairo  Gazette,  quoted  in  Illinois  State  Journal,  December  24,  1857. 
69Laws  of  Illinois,  1857,  p.  23. 


150  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [508 


At  the  same  session  of  the  legislature  an  act  was  passed 
for  the  purpose  of  facilitating  the  settlement  of  affairs  of 
defunct  banks.  Thereafter,  if  the  note  holders  and  other 
creditors  of  an  insolvent  bank  did  not  present  their  claims 
within  three  years  the  bank  was  released  from  further 
obligation.70 

Salutary  as  the  amendments  to  the  banking  law  were, 
they  were  of  no  avail  in  warding  off  the  panic  which  spread 
westward  in  the  spring  and  summer  of  1857.  The  period 
\  of  six  years  during  which  the  stock  banking  system  had 
J  been  in  operation  had  been  one  of  remarkable  development 
for  the  State  of  Illinois.  Taxable  wealth  had  increased 
almost  three  fold;  a  number  of  important  railways  had 
been  constructed,  money  was  plentiful  and  land  values 
were  highly  inflated.  The  reaction  had  now  set  in  in 
earnest  and  the  Chicago  bankers  tried  to  prevent  a  collapse 
of  the  banking  system  by  agreeing  to  receive  the  notes  of 
Illinois  banks  at  par  even  though  during  the  period  from 
September,  1857,  to  March,  1858,  the  price  of  eastern 
exchange  in  terms  of  Illinois  paper  was  never  less  than  two 
per  cent.  In  fact,  in  October,  1857,  it  reached  a  maximum 
of  ten  per  cent.71 

As  the  situation  in  the  New  York  stock  market  be- 
came more  acute,  state  bonds  began  to  decline  with  such 
rapidity  that  the  Illinois  auditor  was  compelled  on  May  8, 
1857,  to  call  upon  practically  every  bank  for  additional 
securities  amounting  to  from  two  to  six  per  cent  of  their 
capital.72  On  July  5,  the  bank  commissioners  announced 
that  there  was  no  need  for  alarm  since  the  notes  in  circu- 
lation amounting  to  $5,535,690  were  secured  by  over  six 
million  dollars  worth  of  bonds,  and  all  but  two  of  the  banks 
had  complied  with  the  request  for  more  securities.  One 
of  the  two  delinquents,  the  People's  Bank  of  Carmi,  had 
$127,500  worth  of  bonds  with  which  to  redeem  $110,300, 
but  the  note  holders  of  the  Stock  Security  Bank  of  Danville 
were  not  so  fortunate,  its  securities  having  depreciated  so 

70Laws  of  Illinois,  1857,  p.  220. 

71  Chicago  Tribune,  January  1,  1861. 

72Illinois  State  Journal,  May  9,  June  25,  1857;  Reports  of  Session, 
1859,  P.  193. 


509]  THE  FREE  BANK  SYSTEM  151 

rapidly  that  the  holders  of  its  notes  received  but  eighty- 
eight  and  a  fourth  cents  on  the  dollar.  This  was  the  first 
instance  in  the  history  of  the  stock  bank  system  of  Illinois 
where  the  proceeds  from  the  sale  of  bonds  on  deposit  had 
not  been  adequate  to  reimburse  the  holders  of  notes,  dollar 
for  dollar.73 

The  value  of  securities  continuing  to  decline,  the  com- 
missioners called  upon  twenty-seven  banks  for  still  further 
bond  deposits  to  be  made  within  the  next  ninety  days. 
This  action  evoked  a  vigorous  protest  on  the  part  of  bank- 
ers and  merchants  and  pressure  was  brought  to  bear  upon 
the  commission  to  secure  an  extension  of  time,  but  the 
members  by  a  vote  of  two  to  one  decided  to  adhere  to  the 
terms  of  the  original  bill.  At  the  expiration  of  the  ninety 
day  period,  all  but  three  of  the  banks  had  reduced  their 
circulation  within  the  legal  limit  or  had  deposited  a  suf- 
ficient amount  of  additional  securities.  The  bonds  of  the 
three  delinquent  institutions  were  promptly  sold  and  a 
sufficient  amount  of  specie  obtained  for  them  to  enable  the 
auditor  to  redeem  the  outstanding  notes  in  full.74  Had  the 
rest  of  the  banks  failed  to  readjust  their  bond  deposits  or 
circulation,  the  auditor  would  have  been  compelled  to 
dump  upon  the  market  at  a  most  inopportune  time  over 
four  and  a  half  millions  in  securities,  $2,738,000  worth  of 
which  was  issued  by  the  State  of  Missouri  whose  credit  was 
now  almost  ruined.  In  addition  to  voting  extravagant 
loans  the  Missouri  legislature  now  threatened  to  adjourn 
without  providing  for  the  interest  payment  on  the  enor- 
mous state  debt,  a  proceeding  which  would  have  sealed  the 
doom  of  the  Illinois  banking  system.  Fortunately,  the 
threat  was  not  carried  out  and  Missouri  bonds,  for  the  time 
being,  ceased  their  rapid  decline  in  value.75 

Meanwhile  the  merchants  of  St.  Louis  became  alarmed 
at  the  frequent  and  extensive  demands  made  upon  the 
Illinois  banks  for  additional  securities  and  voted  to  reject 
all  the  Illinois  currency  offered  at  their  counters.  Since 
a  large  part  of  the  state  was  tributary  to  that  city  the 

73Reports  of  Session,  1859,  p.  193 ;  Bankers  Magazine,  xii,  239. 
74Reports  of  Session,  1857,  p.  193. 

75State  Journal,  October  12,  1857;  November  19,  1857. 


152  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [510 

effect  of  such  action  was  quite  as  serious  as  if  it  had  been 
taken  by  a  group  of  Illinois  merchants.  One  of  the  bank 
commissioners  hastened  to  St.  Louis  and  explained  to  a 
gathering  of  business  men  the  character  of  the  Illinois 
system  and  the  exact  condition  of  the  banks  at  that  time. 
This  action,  together  with  the  influence  of  the  more  con- 
servative newspapers  of  St.  Louis  brought  a  restoration  of 
confidence  and  in  a  few  days  the  paper  of  Illinois  banks 
was  again  accepted  by  the  merchants  and  bankers  of  that 
city.76  The  latter  agreed  to  furnish  specie  for  Illinois  cur- 
rency at  the  rate  of  ninety  to  ninety-five  cents  on  the  dol- 
lar. During  the  few  days  when  Illinois  paper  was  dis- 
credited, St.  Louis  "note  shavers"  reaped  a  harvest  by 
buying  up  the  notes  from  the  public  at  from  ten  to  fifteen 
per  cent  discount.77 

By  January  1,  1858,  the  Illinois  banks  had  made  a 
fairly  complete  recovery  from  the  crisis.  Only  a  small 
number  of  them  had  been  compelled  to  go  into  liquidation, 
although  the  failures  in  other  lines  of  business,  especially 
in  Chicago,  had  been  very  extensive.  In  that  city  business 
was  for  a  time  completely  paralyzed,  speculators  were 
ruined  and  the  progress  of  the  city  retarded  for  two  years. 
The  rest  of  the  state  had  not  been  so  seriously  affected  by 
the  crisis,  there  being  but  199  failures  out  of  11,459  busi- 
ness enterprises,  whereas  in  Chicago  117  out  of  1,350  estab- 
lishments had  failed.78  By  April,  1858,  eastern  exchange 
could  be  had  for  one  and  one-half  per  cent  premium  and 
the  protesting  of  Illinois  currency  had  fallen  off  materially. 
Everything  pointed  to  a  rapid  return  to  normal  condi- 
tions.79 

Unfortunately  the  adverse  weather  conditions  of  the 
summer  of  1858  left  the  Illinois  farmer  with  a  short  grain 
crop  of  most  inferior  quality.80   As  a  result  there  ensued 

76St.  Louis  Democrat,  quoted  by  Illinois  State  Journal,  October  21,  1857. 

77St.  Louis  Intelligencer,  October  23,  1857,  quoted  by  ibid.  St.  Louis 
Democrat,  November  2,  1857,  quoted  by  ibid.  Illinois  State  Journal,  Oc- 
tober 21,  November  9,  1857. 

78Bankers  Magazine,  xii,  681. 

79IlHnois  State  Journal,  April  27,  1858. 

80Chicago  Tribune,  January  1,  1861. 


511] 


THE  FREE  BANK  SYSTEM 


153 


a  depression  in  the  down  state  portion  of  Illinois  more 
severe  than  that  of  the  year  before.  The  banks,  however, 
were  doing  business  on  a  much  more  conservative  basis 
and  were  not  seriously  affected ;  in  fact,  after  two  years  of 
hard  times,  only  six  of  the  fifty-four  banks  had  gone  out 
of  existence.  All  these  institutions,  with  the  exception  of 
the  Danville  bank,  had  redeemed  their  notes  without  loss 
to  the  holders.81 

In  the  report  of  the  secretary  of  the  treasury  of  the 
United  States  on  the  state  of  the  finances  for  the  year 
ending  June  30,  I860,82  Illinois  was  at  the  bottom  of  the 
list  of  states  in  the  amount  of  specie  held  by  her  banks  in 
proportion  to  outstanding  circulation.  The  $269,585  re- 
ported by  Illinois  banks  amounted  to  but  4.25  per  cent  of 
their  note  issue,  whereas  the  average  for  the  entire  country 
was  23.08  per  cent.  In  reviewing  the  banking  situation 
as  judged  by  the  data  in  the  secretary's  report,  Mr.  W.  M. 
Gouge  said  of  Illinois  :83  "In  that  state,  debt  is  piled  upon 
debt.  Funded  debt  forms  the  capital  of  banks  and  floating 
debt  the  currency.  ...  A  traveler  relates  that  the  redemp- 
tion of  notes  with  specie  is  little  more  than  nominal.  But 
the  people  having  confidence  in  their  'ultimate  security'  as 
founded  on  state  stock  pass  them  freely." 

The  report  of  the  bank  commissioners  in  January, 
1859,  took  a  different  view  of  the  situation  than  Mr.  Gouge 
had  done.  They  were  of  the  opinion  that  a  system  which 
had  withstood  the  test  of  two  successive  years  of  financial 4 
depression  should  receive  the  stamp  of  approval  from  the 
public.  In  fact,  the  commissioners  were  convinced  that 
the  banks  of  the  state  "enjoy  today  a  larger  share  of  public 
confidence  than  at  any  former  period."  The  recent  experi- 
ence with  the  bonds  of  Missouri  and  other  states  whose 
credit  had  been  badly  shaken  during  the  panic  led  the 
commissioners  to  recommend  that  Illinois  bonds  be  given 
the  preference  over  those  of  other  states.  They  also  asked 
that  they  be  given  authority  to  prosecute  offenders  against 

81Reports  of  Session,  1859,  p.  193. 

82U.  S.,  36  Cong.,  1  Sess.,  Senate,  Ex.  Doc.,  no.  3,  368. 
^Bankers  Magazine,  xiv,  7. 


154  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [512 

the  foreign  small  note  law,  in  view  of  the  fact  that  prose- 
cuting attorneys  did  not  take  the  act  seriously.84 

Governor  Bissell  in  his  message  pronounced  the  bank- 
ing system  "in  the  main  satisfactory"  and  cited  the  fact 
that  but  six  banks  out  of  fifty-four  had  failed,  as  proof  of 
his  statement.  He  recommended  no  changes  in  the  banking 
act,  save  that  the  banks  be  compelled  to  substitute  new  bills 
for  the  mass  of  filthy  and  almost  unrecognizable  paper 
which  they  continued  to  circulate.  He  did,  however,  ex- 
press a  wish  that  the  legislature  could  prevent  citizens 
of  other  states  from  "depreciating"  Illinois  paper.  As  it 
was,  a  traveler  from  Illinois  was  compelled  to  submit  to  a 
discount  of  his  bank  notes  as  soon  as  he  crossed  the  line 
into  another  state.85 

A  considerable  minority  of  the  members  of  the  legisla- 
ture favored  a  bill  which  provided  for  the  establishment  of 
"specie  banks,"  entirely  independent  of  the  existing  system, 
their  idea  being  that  in  addition  to  banks  of  issue  there 
should  be  state  banks  which  made  a  specialty  of  furnishing 
eastern  exchange  at  reasonable  rates.  Most  of  the  mem- 
bers, however,  were  of  the  opinion  that  the  existing  banking 
system  had  acquitted  itself  so  well  that  it  should  be  left 
as  it  was,  so  no  banking  measures  were  passed  during  the 
1859  session.  Had  the  members  followed  the  recommenda- 
tion of  the  commissioners  in  regard  to  giving  Illinois  bonds 
the  preference  over  those  of  other  states,  the  break  down 
of  the  banking  system  two  years  later  would  undoubtedly 
have  been  prevented.  Illinois  was  not  only  meeting  the 
interest  on  her  indebtedness  promptly  but  had  reduced  her 
outstanding  obligations  to  eleven  millions.  Moreover,  the 
constitution  of  1848  forbade  the  increase  of  the  state  debt 
in  time  of  peace  unless  such  action  were  first  approved  by 
a  majority  of  the  voters  at  a  general  election.86  On  the 
other  hand,  a  large  part  of  the  securities  purchased  by 
newly  formed  associations  were  those  of  the  State  of  Mis- 
souri, whose  debt  already  exceeded  twenty-five  millions, 
although  she  had  a  population  of  less  than  a  million  and 
^Reports  of  Session,  1859,  p.  193. 

Senate  Journal,  1859,  p.  23.  , 
86Article  iii,  Section  37. 


513] 


THE  FREE  BANK  SYSTEM 


155 


was  far  behind  Illinois  in  the  extent  of  material  progress 
made.87  The  general  sentiment  throughout  Illinois  seems 
to  have  been  that  the  banking  system  was  as  satisfactory 
as  it  could  be  made  and  that  the  general  assembly  should 
let  well  enough  alone.88 

The  year  1859  witnessed  a  recovery  from  the  hard 
times  of  the  preceeding  t^Va  years,  but  one  marked  by  cau- 
tion. Legitimate  enterprises  in  Chicago  were  able  to 
obtain  plenty  of  eastern  capital  at  ten  per  cent,  but  only  the 
best  unincumbered  property  was  accepted  as  security.89 
However,  neither  Chicago  nor  the  rest  of  the  state  could 
be  said  to  be  prosperous,  although  they  had  learned  the 
much  needed  lesson  that  "patience,  prudence  and  economy 
are  the  most  trustworthy  roads  to  fortune."90  The  grain 
crop  of  1859  was  of  good  quality  and  brought  a  good  price 
but  it  was  not  a  very  large  one,  hence  the  condition  of  the 
eastern  exchange  market  was  little  better  than  it  had  been 
in  1857  and  1858.91  The  year  1860,  on  the  other  hand,  was 
the  most  prosperous  one  in  the  history  of  Illinois  agricul- 
ture up  to  that  time.  The  crops  of  that  year  were  unpar- 
alleled in  size  and  excellence,  while  the  extraordinary  de- 
mands on  the  part  of  European  countries  kept  up  prices. 
Eastern  exchange  soon  returned  to  normal  and  bank  cur- 
rency was  in  great  demand  for  crop  moving.92  As  a  result 
the  issues  of  the  existing  banks  were  expanded  and  many 
new  associations  were  formed.93 

The  natural  expansion  of  the  currency,  however,  was 
interfered  with  by  another  slump  in  the  value  of  the  Mis- 
souri bonds  which  necessitated  a  call  being  made  upon 
eighteen  of  the  banks  for  the  deposit  of  more  securities  or 
the  retirement  of  a  portion  of  their  notes.94  The  banks 
succeeded  in  adjusting  their  issues  to  the  amount  of  securi- 

87 Illinois  State  Journal,  January  17,  1859. 
^Missouri  Democrat,  February  5,  1859. 
89Bankers  Magazine,  xiii,  625. 
90 Ibid.,  xiv,  410. 

91Chicago  Tribune,  January  1,  1861. 
*2Ibid. 

93Reports  of  Session  (Senate),  .1861,  p.  331. 
94Illinois  State  Journal,  February  20,  i860. 


156  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [514 

ties  on  deposit  but  a  number  of  the  down  state  institutions 
had  practically  suspended  specie  payment,  for  the  Chicago 
banks  were  protesting  down  state  issues  at  the  rate  of 
eighty  to  one  hundred  thousand  dollars  a  month  and  send- 
ing them  in  to  the  auditor  for  redemption.95  Many  country 
bankers,  in  fact,  purposely  allowed  their  notes  to  go  to 
protest  in  the  belief  that  it  was  less  expensive  to  sacrifice 
their  securities  than  to  keep  in  their  vaults  a  large  amount 
of  specie.96  To  many  of  the  down  state  bankers  the  custom 
of  the  large  Chicago  institutions  of  sending  a  messenger 
to  the  country  banks  with  a  large  amount  of  bills  for  re- 
demption was  exceedingly  annoying.  In  spite  of  the  act 
of  1857  which  forbade  such  a  practice,  the  Keaper's  Bank 
of  Fairfield  undertook  to  discourage  the  presentation  of 
its  notes  by  "tiring  out"  Chicago  bank  messengers.  On 
one  occasion,  when  a  representative  of  Willard  and 
Atkins  of  Chicago  presented  for  redemption  at  the  bank's 
counter  several  packages,  each  containing  five  or  six 
hundred  dollars  worth  of  the  bank's  notes,  the  cashier  pro- 
ceeded to  redeem  the  notes  one  by  one  with  five  and  ten 
cent  pieces,  stopping  frequently  to  attend  to  other  duties. 
Finding  at  the  close  of  the  day's  business  that  but  one 
hundred  and  fifty  dollars  worth  of  notes  had  been  re- 
deemed, the  messenger  had  the  rest  of  the  notes  protested 
for  non-payment  and  the  auditor  was  called  upon  to  place 
the  bank  in  liquidation.  The  officers  of  the  bank  resorted 
to  injunction  proceedings  and  the  case  was  ultimately  de- 
cided by  the  Illinois  supreme  court.  Here  it  was  held  that 
payment  of  notes  "on  demand"  meant  that  the  holder  is 
entitled  to  present  all  his  notes  simultaneously  and  receive 
specie  for  them  in  a  lump  sum.97 

As  the  winter  of  1860-61  approached  and  the  political 
situation  in  the  South  became  more  acute,  southern  securi- 
ties began  to  decline  and  the  price  of  eastern  exchange  in 
terms  of  Illinois  currency  rose  correspondingly.98  The 

^McElroy's  Reporter,  April  10,  i860. 
^Bankers  Magazine,  xv,  411. 

97See  Reaper's  Bank  vs.  Willard,  24  Illinois,  433.  Bankers  Magazine, 
xiv,  487. 

98Chicago  Tribune,  January  1,  1861. 


515] 


THE  FREE  BANK  SYSTEM 


157 


bank  commissioners,  upon  examining  the  securities  in  the 
hands  of  the  auditor,  found  it  necessary  to  call  upon 
twenty-two  banks  for  additional  deposits,  the  amounts  in 
the  different  cases  varying  from  $2,062  to  $51,070.  They 
were  granted  the  usual  forty  days  grace  in  which  to  make 
good  the  deficiency  or  retire  a  part  of  their  circulation. 
The  Chicago  bankers,  however,  were  too  concerned  over  the 
prospects  of  civil  war  to  be  willing  to  await  the  action  of 
the  delinquent  banks  and  immediately  agreed  to  refuse 
to  receive  the  notes  of  any  of  the  banks  under  call  until 
they  had  been  restored  to  good  standing.  The  period  of 
grace  would  have  expired  January  1,  1861,  but  the  com- 
missioners, late  in  December,  extended  the  time  to  March 
20."  The  holders  of  the  notes  of  these  banks  made  vigorous 
objection  to  the  commissioners'  action  on  the  ground  that 
the  notes  were  being  subjected  to  a  discount  of  fifteen  to 
twenty  per  cent,  whereas  if  the  banks  were  closed  at  once 
and  their  bonds  sold,  an  average  of  ninety-two  cents  on  the 
dollar  would  be  realized.  The  commissioners,  however, 
were  of  the  opinion  that  any  effort  to  sell  a  large  number  of 
bonds  on  the  New  York  market  would  only  result  in  a 
heavy  loss  to  the  note  holders.100  Furthermore,  between 
November  20,  the  date  of  the  original  call,  and  December 
20,  the  date  when  the  extension  of  time  was  granted,  the 
securities  of  nearly  every  state  in  the  Union  had  depreci- 
ated to  such  an  extent  that  out  of  justice  to  the  twenty-two 
banks  under  call  it  would  have  been  necessary  to  require 
nearly  every  bank  in  the  state  to  deposit  additional 
bonds.101 

The  beginning  of  the  year  1861  marks  so  distinct  a 
transition  in  the  history  of  stock  banks,  that  a  review  of  the 
development  of  the  system  up  to  that  time,  and  an  analysis 
of  its  internal  workings  as  revealed  in  the  statements  issued 
by  the  state  officers  will  not  be  out  of  place  at  this  point. 

"Reports  of  Session  (Senate),  1861,  p.  333;  Illinois  State  Journal, 
November  20,  21,  i860. 

100Reports  of  Session  (Senate),  1861,  p.  333;  Illinois  State  Journal, 
December  21,  22,  i860;  St.  Louis  Democrat,  December  8,  i860. 

101Reports  of  Session  (Senate),  1861,  p.  333. 


158  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [516 


The  system  had  been  given  a  fair  trial  for  nine  years  and 
the  officers  to  whom  the  work  of  supervision  had  been 
entrusted  had  performed  their  duties  with  ability  and 
honesty.  The  note  issues  had  been  so  fully  protected  by 
state  and  federal  bonds  that  out  of  fourteen  banks  which 
had  gone  into  liquidation  the  securities  of  but  one  fell 
short  of  providing  for  the  redemption  in  full  of  all  the  out- 
standing issue.  And  yet  the  system  could  not  have  been 
pronounced  a  successful  one.  In  the  first  place,  the  notes 
were  circulated  with  a  fair  degree  of  ease  within  the  state, 
but  they  were  subjected  to  a  discount  as  soon  as  they  were 
carried  beyond  its  borders.102  In  the  next  place,  the  legis- 
lature failed  to  make  any  discrimination  in  favor  of  Illi- 
nois securities  and  banking  associations  bought  up  at  a 
bargain  bonds  of  unstable  value  which  failed  utterly  to 
afford  the  needed  protection  to  note  holders  when  the  Civil 
War  broke  out.103  Lastly,  at  no  time  during  their  exist- 
ence had  the  banks  kept  on  hand  an  adequate  supply  of 
specie  for  the  redemption  of  their  notes.  Instead  of  facili- 
tating the  process  of  redemption,  they  sought  to  make  it  as 
difficult  as  possible.  No  system  of  note  issue  could  be 
termed  successful  in  which  the  holders  of  notes  in  the  great 
majority  of  cases  were  compelled  to  resort  to  the  cumber- 
some process  of  protest  and  sale  of  securities  in  order  to 
exchange  them  for  specie.104 

The  following  table105  contains  the  aggregate  state- 
ments of  the  ninety-four  banks  reporting  their  condition 
to  the  bank  commissioners,  October  1, 1860,  and  the  balance 
sheets  of  (1)  a  large  Chicago  bank,  (2)  the  largest  down 
state  bank,  (3)  one  of  the  small  group  of  conservative 
country  banks,  (4)  one  of  the  more  numerous  banking 
associations  organized  solely  to  obtain  notes  and  lend  them 
through  some  third  party : 


102Champaign  Gazette,  November  28,  i860. 
103Senate  Journal,  1863,  p.  22. 
104Bankers  Magazine,  xiv,  7. 

105The  data  given  in  the  table  were  obtained  from  Reports  of  Session 
(Senate),  1861,  p.  376. 


517] 


THE  FREE  BANK  SYSTEM 


159 


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160  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [518 

The  aggregate  statement  for  October  1, 1860,  shows  the 
condition  of  the  banks  when  the  stock  system  under  the 
stimulus  of  prosperous  times  had  attained  its  maximum 
growth.  In  addition  to  the  ninety-four  banks  from  which 
returns  were  received  there  were  eighteen  others  in  exist- 
ence at  this  time.  They  evidently  had  not  complied  with 
the  provision  of  the  act  calling  for  a  quarterly  statement 
of  their  condition.  The  fact  that  $12,264,580.74  in  securi- 
ties had  been  deposited  as  a  protection  to  but  $11,010,837 
in  notes  furnished  a  safe  margin  against  the  ordinary 
fluctuations  of  the  stock  market.  More  than  half  of  this 
amount  of  securities  had  been  deposited  since  the  amend- 
ment of  1857,  hence  the  bank  making  the  deposit  received 
in  notes  but  ninety  per  cent  of  the  market  value  of  its 
bonds.106 

Practically  every  item  in  the  statement  reveals  the 
fact  that  but  few  of  the  banks  were  conducting  a  regular 
banking  business.  Only  fourteen  of  them  owned  even 
enough  real  estate  to  provide  a  site  for  their  place  of  busi- 
ness making  a  total  amount  of  but  $116,551.40  invested  in 
this  way.107  The  item,  "notes  of  other  banks,"  represents 
the  holdings  of  but  thirty-two  institutions  out  of  the  ninety- 
four,  while  but  thirty-eight  banks  reported  any  indebted- 
ness to  other  banks.  Furthermore,  but  fourteen  banks 
carried  on  a  loan  and  discount  business  of  their  own,  which 
accounts  for  the  fact  that  but  $540,876.28  of  the  nineteen 
millions  of  resources  was  used  in  this  manner.108  On  the 
other  hand,  nearly  all  the  banks  had  large  amounts  on 
deposit  with  other  banks,  this  item  alone  aggregating 
$3,793,752.22.  All  these  facts  go  to  show  that  most  of  the 
stock  banks  were  mere  devices  for  obtaining  a  supply  of 
paper  money  to  use  in  connection  with  a  private  banking 
business  where  the  restrictions  placed  upon  an  incorporated 
concern  could  be  avoided.  Closely  related  to  the  deposits 
in  other  banks  is  the  $1,950,244.39  due  from  banks  and 


t0QReports  of  Session  (Senate),  1859,  p.  206. 
*°7Ibid.,  1861,  pp.  376  ff. 


519] 


THE  FREE  BANK  SYSTEM 


161 


individuals,  aside  from  loans  and  discounts.  A  large  part 
of  this  amount  probably  can  be  attributed  to  the  purchase 
of  bills  of  exchange  arising  from  the  sale  of  produce.109 

The  remainder  of  the  banks'  note  issues  were  invested 
in  bonds  which  served  as  security  for  a  further  note  issue 
and  so  on  as  long  as  the  necessity  of  redeeming  the  notes 
in  specie  could  be  avoided.  That  most  of  the  banks  had  no 
intention  of  redeeming  their  notes  in  specie  can  be  seen 
from  the  fact  that  but  sixty-one  of  them  kept  any  specie 
on  hand  at  all  and  half  of  these  had  a  thousand  dollars 
or  less.  The  f 302,905.26  on  hand  at  the  time  of  the  report 
was  less  than  three  per  cent  of  the  outstanding  circula- 
tion,110 not  to  mention  the  other  demand  obligations.  The 
minor  items  in  the  aggregate  statement  column  are  either 
self  explanatory  or  furnish  little  indication  as  to  their 
exact  character.111 

In  the  second  column  is  represented  a  peculiar  bal- 
ance sheet,  that  of  the  Marine  Bank  of  Chicago.  It  will  be 
noted  that  the  association  had  invested  but  |55,753.83  of 
its  half  a  million  dollars  of  paid  up  capital  in  stocks  and  on 
this  security  had  issued  but  $31,795  in  notes.  One  could 
conclude  from  this  much  of  the  bank's  statement  that  it 
was  carrying  on  a  discount  and  deposit  business  but  a 
glance  at  the  other  items  shows  that  this  is  not  the  case. 
Deposits  aggregate  but  $19,378.35  and  no  loans  and  dis- 
counts whatever  were  made.  By  far  the  largest  part  of  the 
bank's  funds  had  been  loaned  through  another  bank  or 
banks,  but  no  use  was  made  of  the  "endless  chain"  device  of 
securing  a  large  supply  of  bank  notes  by  using  the  exist- 
ing issue  for  the  purchase  of  more  bonds.  The  Chicago 
banks  found  other  lines  of  banking  more  profitable  than 
note  issue  under  a  restrictive  law.112 

109Reports  of  Session  (Senate),  1861,  pp.  376  ff. 

110The  banks  of  Indiana,  at  the  close  of  i860,  had  $2,296,648  in  specie 
and  but  $5,755,201  in  notes;  and  those  of  Ohio  $2,377,466  in  specie  and 
$8,143,611  in  notes.  U.  S.  Comptroller  of  the  Currency,  Report,  1876, 
p.  116. 

^Reports  of  Session  (Senate),  1861,  pp.  376  ff. 
112Andreas,  History  of  Chicago,  ii,  617. 


162         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [520 

In  marked  contrast  with  the  Marine  Bank  is  the 
largest  of  all  the  stock  banks  and  the  successor  of  the  old 
Bank  of  Illinois,  the  State  Bank  of  Shawneetown.  In 
spite  of  its  high  sounding  name,  however,  it  had  no  official 
connection  with  the  state.  It  had  invested  all  its  capital  in 
bonds,  obtained  notes  for  them  and  with  these  had  obtained 
more  bonds  as  security  for  more  notes.  The  |11,500 
charged  to  real  estate  is  of  interest  in  that  it  probably  rep- 
resents the  "present  worth"  of  the  $80,000  structure 
erected  by  the  old  Bank  of  Illinois.  It  will  be  seen  that 
practically  all  the  rest  of  the  bank's  funds  were  loaned  out 
through  other  agencies  or  invested  in  bonds. 

The  McLean  County  Bank  is  one  of  the  very  few  stock 
banks  which  conducted  their  affairs  about  as  a  small  bank 
issue  would  do  at  the  present  time.  The  capital  stock  had 
been  invested  in  securities  and  the  full  amount  of  notes 
issued  thereon,  but  in  comparison  with  other  stock  banks,  .a 
large  amount  of  discount  business  had  been  carried  on  and 
an  unusual  amount  of  deposits  received.  The  specie  reserve 
while  small  was  much  larger  than  the  average.  This  bank 
was  one  of  the  few  to  survive  the  outbreak  of  the  rebel- 
lion.113 

The  bank  maintained  by  Tinkham  and  Company,  pri- 
vate bankers  of  Chicago,  affords  an  example  of  the  type  of 
institution  which  was  established  in  an  out  of  the  way 
place  for  the  sole  purpose  of  obtaining  a  supply  of  cur- 
rency. The  incorporators  of  the  enterprise  made  no  effort 
to  carry  on  a  banking  business  at  the  place  mentioned  in 
the  charter  and  on  the  notes,  but  circulated  their  currency 
in  Chicago  or  some  other  distant  point  where  there  was  lit- 
tle chance  of  anyone  taking  the  trouble  to  find  the  bank's 
counter.  Tinkham  and  Company  had  evidently  used  about 
$50,000  of  the  note  issue  in  connection  with  their  private 
banking  business  and  had  invested  the  rest  in  bonds. 

The  table  as  a  whole  shows  that  the  stock  bank  system, 
instead  of  providing  the  state  with  adequate  and  dependable 


3Re ports  of  Session  (Senate),  1863,  i,  215. 


521] 


THE  FREE  BANK  SYSTEM 


163 


facilities  for  all  lines  of  banking,  had  created  a  machine 
for  the  issue  of  paper  money. 

As  the  secession  movement  advanced  and  the  prospect 
of  war  became  more  of  a  certainty,  it  was  generally  agreed 
that  some  radical  steps  must  be  taken  to  bolster  up  the  cur- 
rency system  of  Illinois.  Governor  Yates  in  his  inaugural 
message  joined  with  the  bank  commissioners  in  recom- 
mending: (1)  the  limitation  of  the  choice  of  securities 
to  the  bonds  of  Illinois  and  the  United  States,  (2)  that 
one  or  more  cities  of  the  state  should  be  selected  as  central 
redemption  points  where,  for  a  small  fee,  the  notes  of  a 
stock  bank  could  be  exchanged  for  specie.114  The  Chicago 
bankers  were  especially  desirous  of  securing  the  adoption 
of  the  latter  recommendation  and  a  convention  of  bank 
presidents  and  cashiers  was  called  by  the  bankers  of  that 
city  to  formulate  plans  for  a  redemption  system  which 
would  obviate  the  necessity  of  sending  messengers  to  re- 
mote parts  of  the  state  to  the  counters  of  country  banks. 
The  Chicago  banks  urged  each  country  association  to  retire 
one-tenth  of  its  circulation  and  to  open  a  redemption  agency 
at  Springfield  or  Chicago.  As  compensation  to  the  down 
state  banks  for  retiring  a  portion  of  their  notes  and  selling 
the  securities  back  of  them  at  such  an  unfavorable  time,  the 
Chicago  banks  agreed  to  pay  an  extra  premium  of  five  per 
cent  for  all  New  York  sight  exchange  delivered  to  them 
by  country  banks  during  the  ten  days  following  the  making 
of  the  agreement.  As  a  hint  concerning  what  would  follow 
upon  an  unfavorable  response  to  the  proposition,  the  Chi- 
cago bankers  mentioned  the  fact  that  they  had  on  hand 
large  amounts  of  the  notes  of  down  state  banks  which  were 
likely  to  be  presented  for  redemption  at  any  time.  When 
the  convention  of  presidents  and  cashiers  met,  January, 
1861,  with  representatives  present  from  thirty-seven  banks, 
a  system  of  mutual  redemption  was  formulated,  but  the 
banks  of  themselves  could  accomplish  little  as  the  existence 


114Reports  of  Session  (Senate),  1861,  pp,  21,  335. 


164  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [522 

of  all  except  a  few  of  them  was  threatened  by  the  probable 
secession  of  the  southern  states.115 

The  question  of  banking  reform  was  therefore  one 
with  which  the  legislature  alone  was  competent  to  deal  and 
it  responded  to  the  appeal  of  the  Chicago  bankers  by  enact- 
ing an  amendment,  February  14,  1861,  entitled  "An  act  to 
amend  the  general  banking  law  to  afford  greater  security 
to  the  public."  First  of  all,  it  was  provided  that  thereafter 
all  securities  deposited  with  the  auditor  must  be  those  of 
Illinois  or  the  United  States.  In  order  to  encourage  the 
existing  banks  to  dispose  of  their  southern  bonds,  the  act 
provided  that  if  securities  which  had  been  below  par  for 
two  years  were  exchanged  for  securities  which  had  been  at 
par  for  two  years,  notes  should  be  issued  on  the  latter  up 
to  their  full  face  value,  until  September,  1861.  After  that 
date,  the  usual  ten  per  cent  margin  between  notes  and 
securities  should  be  required.  Any  bank  whose  circulation 
exceeded  the  lawful  limit  was  given  sixty  days  in  which  to 
make  good  the  deficiency  in  securities.  If  at  the  end  of  that 
time  there  was  still  a  deficiency,  the  auditor  was  required 
to  place  the  bank  in  liquidation.  Before  the  passage  of  this 
act  the  auditor  had  been  required  to  sell  the  bonds  of  banks 
whose  notes  had  been  protested  and  to  pay  the  note  holders 
in  specie  out  of  the  proceeds.  The  present  act  provided 
that  the  auditor  should  redeem  the  notes  directly  with 
bonds  and  let  the  note  holder  dispose  of  the  bonds  as  best 
he  could. 

The  act  further  provided  for  the  adoption  of  a  central 
redemption  system.  All  banks  organized  thereafter  were 
required  to  maintain  an  agency  in  Springfield  or  Chicago, 
while  the  older  banks  were  induced  to  do  so  by  being  offered 
a  special  thirty  day  exemption  from  being  placed  in  liqui- 
dation in  case  their  notes  were  protested.  Furthermore, 
persons  protesting  the  notes  of  any  existing  bank  which 
should  establish  an  agency  were  entitled  to  but  six  per 
cent  interest  instead  of  the  usual  twelve  per  cent  which  had 
been  paid  to  holders  of  protested  notes.   The  agency  thus 

115IUinois  State  Journal,  December  19,  i860,  January  17,  1861 ;  Bankers 
Magazine,  xiv,  581 ;  Chicago  Tribune,  January  1,  1861. 


523] 


THE  FREE  BANK  SYSTEM 


165 


provided  for  could  be  either  a  separate  or  joint  affair  and 
was  permitted  to  charge  three-fourths  of  one  per  cent  com- 
mission during  the  year  1861  and  after  that  not  more  than 
one-half  of  one  per  cent. 

In  order  to  keep  the  public  more  closely  in  touch  with 
the  banking  situation,  the  governor  and  commissioners 
were  required  to  issue  quarterly  statements  of  the  value  of 
the  securities  then  on  deposit.  Every  six  months,  the  banks 
were  required  to  give  to  the  public  a  complete  list  of  their 
stockholders  and  the  amount  of  their  respective  holdings. 
As  a  check  upon  the  excessive  issue  of  notes,  it  was  speci- 
fied that  no  bank  could  thereafter  issue  an  amount  greater 
than  three  times  the  actual  paid  up  capital.  The  minimum 
capital  requirement  was  reduced  to  twenty-five  thousand 
dollars  in  actual  cash.  Thereafter  banks  could  not  be  estab- 
lished in  any  town  containing  less  than  one  thousand  in- 
habitants, an  exception  being  made  of  county  seats.  The 
charters  of  all  banks  having  no  bona  fide  officers  or  place 
of  doing  business  were  declared  forfeited  and  lending 
through  a  third  party  was  punishable  by  forfeiture  of  all 
interest  due.  Whether  a  bank  chose  to  issue  notes  or  not, 
it  was  required  to  keep  a  minimum  bond  deposit  of  f  5,000 
in  the  auditor's  office.116 

In  addition  to  placing  the  existing  system  upon  a 
firmer  basis  so  far  as  could  be  done  without  infringing  upon 
the  rights  of  banks  already  in  operation,  the  legislature 
provided  for  the  establishment  of  a  great  central  banking 
system  entirely  distinct  from  the  stock  banks.  The  state 
bank  of  Indiana  had  met  with  such  success  and  its  paper 
bore  so  high  a  reputation  that  the  Illinois  legislature  be- 
lieved that  by  providing  a  similar  institution  the  currency 
ills  of  the  state  would  be  at  an  end.  The  new  institution 
was  to  be  called  the  Union  Bank  of  Illinois  and  was  to  con- 
tinue its  existence  for  twenty-five  years  after  its  charter 
had  been  approved  at  the  next  general  election.  Three 
months  after  the  ratification  of  the  act  by  the  people,  the 
bank  commissioners  were  to  divide  the  state  into  not  more 


116Laws  of  Illinois,  1861,  pp.  39  ff. 


166  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [524 


than  thirty  districts,  in  each  of  which  a  branch  bank  was  to 
be  located.  The  capital  was  not  to  exceed  ten  millions  and 
every  branch  was  to  be  held  responsible  for  the  debts  of 
the  others.  The  maximum  rate  of  interest  was  fixed  at 
seven  per  cent.  The  system  was  referred  to  as  the  "specie 
system"  of  banking  as  contrasted  with  the  "stock  system." 
The  only  safeguard  provided  for  demand  notes  was  that 
they  could  not  be  issued  in  excess  of  twice  the  amount  of 
paid  up  capital.117 

At  the  next  general  election  in  November,  1862,  the 
bill  was  submitted  to  the  people  and  rejected  by^  large 
vote.118  The  reasons  assigned  for  its  unpopularity  were: 
(1)  It  was  expected  that  the  greenbacks  would  furnish  an 
ample  supply  of  good  paper  money.  (2)  A  constitutional 
convention  was  about  to  meet  and  the  general  opinion  was 
that  the  solution  of  the  banking  question  should  be  left  to 
it.119  (3)  The  collapse  of  the  stock  banking  system,  about 
to  be  described,  occurred  between  the  passage  of  the  act  and 
the  date  of  its  submission  to  the  people.  As  a  consequence, 
a  strong  feeling  against  banks  was  engendered.120 

It  will  be  remembered  that  the  bank  commissioners  in 
November,  1860,  called  upon  twenty-two  of  the  one  hundred 
and  twelve  stock  banks  in  the  state  for  more  securities. 
When  the  final  date  on  which  the  deficiency  could  be  made 
good  arrived  (March  20),  seventeen  of  the  banks  with  an 
aggregate  circulation  of  f 2,726,795  were  still  unable  to 
comply  with  the  call  and  were  placed  in  liquidation. 

Meanwhile  the  southern  states  had  one  by  one  seceded 
from  the  Union  and  their  bonds  in  the  hands  of  the  Illinois 
auditor  to  the  amount  of  f 9,467,500  had  rapidly  declined  in 
value.  Missouri  bonds,  which  were  quoted  at  67  cents  on 
the  dollar  on  April  1,  by  April  17  had  fallen  to  51  cents 
and  the  prospect  of  a  recovery  daily  grew  less.  The  notes 
of  thirty-two  stock  banks  were  refused  by  the  Chicago 
bankers,  and  the  paper  of  as  many  more  banks  was  on  very 

117 Laws  of  Illinois,  1861,  p.  53. 
^Bankers  Magazine,  xv,  539,  554. 
119Champaign  Gazette,  October  30,  1861. 
^Illinois  State  Journal,  June  26,  1861. 


525] 


THE  FREE  BANK  SYSTEM 


167 


dangerous  ground.121  Outside  of  Chicago,  notes  which 
were  discredited  in  that  city  were  accepted  at  fifty  cents 
on  the  dollar,  while  the  paper  of  other  banks  circulated 
about  as  usual.  The  down  state  business  men  protested 
that  the  strictness  of  the  Chicago  bankers  was  merely 
making  a  bad  situation  worse  by  hastening  the  ruin  of 
the  great  majority  of  the  country  banks.122  The  merchants 
of  Chicago  adopted  a  more  liberal  policy  toward  the  stock 
banks.  Believing  that  the  war  would  be  of  short  duration, 
they  agreed  to  take  at  par  all  Illinois  paper  not  already 
discredited  by  Chicago  bankers,123  but  this  arrangement 
became  intolerable  when  New  York  exchange  reached  a 
premium  of  twenty  per  cent  and  threatened  to  go  higher. 
When  on  May  15,  Missouri  stock  had  fallen  to  35  cents  on 
the  dollar,  Tennessee  to  45  and  Virginia  to  43  and  the  col- 
lapse of  the  greater  part  of  the  stock  banks  was  bound  to 
follow,  the  Chicago  merchants  hastened  to  abrogate  their 
agreement  and  to  accept  Illinois  currency  at  what  it  would 
bring  in  New  York  exchange.124 

Everywhere  the  whole  issue  of  stock  notes  began  to  be 
discredited.  Merchants  refused  to  give  change  in  coin  for 
a  bank  note  and  persons  depositing  Illinois  notes  at  a 
bank  were  required  to  accept  payment  in  the  same  from 
the  bank.125  The  business  men  of  Springfield  voted  to 
receive  the  notes  of  only  thirty-six  banks  which  had  depos- 
ited northern  state  bonds  with  the  auditor.126  As  a  result 
of  the  scarcity  of  money  a  considerable  amount  of  specie 
was  forced  out  of  hiding  places  and  into  circulation.127 

If  the  war  had  begun  in  the  autumn  of  1860  instead  of 
in  the  spring  of  1861,  the  farmers  of  the  state  would  have 
been  caught  with  an  immense  amount  of  rejected  and  depre- 

121Chicago  Tribune,  April  17,  1861 ;  St.  Louis  Democrat,  April  3,  1861 ; 
Champaign  Gazette,  April  10,  1861. 

122St.  Louis  Democrat,  April  3,  1861 ;  Missouri  Republican,  quoted  by 
Illinois  State  Journal,  April  6,  1861. 

123Chicago  Tribune,  May  2,  1861. 

12*Ibid.,  May  16,  1861. 

125Illinois  State  Journal,  May  16,  1861. 

12«Ibid.,  May  18,  1861. 

X21lbid.,  May  20,  1861. 


168  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [526 

dated  currency  on  their  hands ;  but  as  it  was,  the  large  city 
banks  were  the  heaviest  losers.  At  the  next  session  of  the 
legislature  they  demanded  that  they  be  reimbursed  under 
the  guise  of  a  war  measure,  but  they  were  unsuccessful.128 
The  provision  of  the  original  banking  act,  which  per- 
mitted the  banks  to  deposit  any  state  securities  on  which  six 
per  cent  interest  was  regularly  paid,  had  naturally  led 
banking  associations  to  purchase  the  less  expensive  south- 
ern securities.  It  was  this  fact  that  caused  the  almost 
complete  collapse  of  the  whole  system  of  banking  in  Illi- 
nois. The  securities  of  all  the  states  except  a  few  in  the 
North  and  East  had  shrunk  almost  fifty  per  cent  in  value 
within  six  months  and  desperate  efforts  were  made  by  con- 
servative business  men  to  eliminate  all  currency  based  upon 
depreciated  bonds.129  To  this  end  a  conference  of  down 
state  bankers  was  held,  June  4,  1861,  at  which  representa- 
tives from  Springfield,  Jacksonville,  Decatur,  Alton,  Dan- 
ville, and  Carbondale  were  present.  The  conference  made 
up  a  list  of  fourteen  banks,  all  of  whose  notes  were  pro- 
tected by  the  bonds  of  northern  states,  and  agreed  to  accept 
at  par  the  notes  of  any  bank  on  the  list  and  to  reject  the 
paper  of  all  other  stock  banks.  This  action  reduced  the 
amount  of  paper  in  good  standing  to  $1,076,737,  whereas 
six  months  before  over  twelve  millions  was  in  circula- 
tion.130 Much  of  the  depreciated  paper  continued  to  be 
used,  however,  at  what  were  known  as  merchants',  bankers', 
and  railroad  rates.  Lists  of  notes  and  their  rating  were 
published  in  the  newspapers  and  posted  in  stores  and 
railway  stations  for  the  guidance  of  note  holders.131  The 
reduction  in  the  amount  of  media  of  exchange  caused  no 
appreciable  change  in  prices  for  the  volume  of  business 
had  diminished  to  such  an  extent  that  it  could  easily  be 
transacted  with  the  remaining  notes  of  Illinois  banks  and 
those  of  Indiana  and  Ohio  banks.132 

128 Journal  of  Constitutional  Convention,  1862,  February  6,  1862. 
129Chicago  Tribune,  May  23,  1861. 
130Illinois  State  Journal,  June  5,  1861. 

131  See  Chicago,  Springfield  and  other  local  newspapers  for  lists. 
132Chicago  Tribune,  May  30,  1861. 


527] 


THE  FREE  BANK  SYSTEM 


169 


In  order  to  assist  note  holders  in  disposing  of  their 
notes,  firms  like  Tinkham  and  Company  and  the  Ridgely 
Bank  in  Springfield  established  agencies  for  the  conver- 
sion of  rejected  notes  into  bonds  and  then  into  New  York 
exchange.  For  a  few  weeks  these  firms  along  with  scores 
of  individual  note  holders,  poured  the  notes  into  the  office 
of  the  state  auditor  at  the  rate  of  $100,000  a  day ;  in  fact, 
that  official  was  compelled  to  close  his  office  for  a  time 
until  the  accumulation  of  notes  could  be  counted,  can- 
celled and  burned.133 

In  the  meantime,  the  bank  commissioners  were  trying 
to  secure  additional  bond  deposits  from  a  large  part  of  the 
banks,  but  were  meeting  with  no  success.  On  May  24, 
twenty-three  of  these  were  added  to  the  delinquent  list.  The 
remaining  seventeen  were  left  undisturbed  because  their 
notes  were  backed  by  bonds  of  northern  states  and  those  of 
the  United  States,  the  latter,  however,  being  worth  but 
eighty-five  cents  on  the  dollar.  The  banks  were  compelled 
to  agree  to  establish  central  redemption  agencies  in  return 
for  their  being  exempted  from  call,  the  advantage  to  them 
of  such  exemption  being  that  in  case  their  notes  depreci- 
ated greatly  they  could  buy  them  up  at  a  great  discount  and 
present  them  to  the  auditor  for  redemption  in  bonds,  dollar 
for  dollar.  On  the  other  hand,  if  their  notes  were  under 
protest  the  note  holder  had  a  prior  lien  not  only  on  all  the 
bank's  assets  but  also  upon  the  stockholders  up  to  an 
amount  equal  to  their  respective  holdings.134 

The  rapid  disappearance  of  Illinois  notes  from  the 
channels  of  trade  placed  business  upon  a  specie  basis  and 
the  few  banks  which  remained  paid  out  no  more  local  cur- 
rency at  their  counters.  The  notes  of  the  small  group  of 
banks  in  good  standing  were  accepted  at  the  rate  of  ninety 
cents  on  the  dollar,  while  all  the  rest  were  refused.  Chicago 
had  been  rated  as  a  "dear  market"  so  long  as  business  was 
transacted  on  a  paper  basis,  but  now  the  wholesale  houses 
of  this  city  were  enabled  to  compete  on  equal  terms  with 
those  of  other  cities.135 

133Commissioners'  report  in  Illinois  State  Journal,  June  20,  1861. 
13*Ibid. 

135Bankers  Magazine,  xv,  947. 


170  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [528 


A  comparison  of  the  auditor's  report  for  October,  1861, 
with  those  of  July  and  April  of  the  same  year  shows  the 
rapid  progress  made  by  that  officer  in  retiring  and  destroy- 
ing the  stock  bank  notes  sent  in  for  redemption.  On  April 
1,  |11,107,600  was  outstanding.  By  July  1,  this  amount 
had  been  reduced  to  $7,294,855  and  by  October  1,  to 
$3,507,686.* 36  As  the  notes  were  presented  to  him,  the 
auditor  calculated  the  ratio  which  they  bore  to  the  total  out- 
standing issue  of  the  bank  in  question,  and  paid  to  the  note 
holder  the  same  proportion  of  that  bank's  securities.  For 
instance,  during  the  month  of  October,  1861,  there  were 
presented  notes  with  a  par  value  of  $279,089,  but  the  hold- 
ers received  bonds  worth  only  f 160,419.80,  these  amounts 
having  the  same  relation  to  the  total  amount  of  the  bank's 
notes  and  bonds  respectively. 

It  is  impossible  to  estimate  the  total  loss  incurred  by 
bank  creditors  through  the  collapse  of  the  stock  banks 
in  1861  for  the  reason  that  many  persons  sold  their  bonds 
or  notes  to  brokers  at  a  great  sacrifice,  while  others  were 
in  a  position  to  hold  their  bonds  until  the  credit  of  states 
like  Missouri,  for  example,  recovered  from  the  effects  of 
reckless  finance  and  the  depression  which  accompanied  the 
war.  If  the  rate  at  which  the  note  holders  were  reimbursed 
by  the  auditor  could  be  taken  as  a  criterion,  the  loss  could 
be  placed  at  about  forty-four  per  cent  but,  as  has  been 
shown,  large  numbers  of  persons  submitted  to  a  second 
heavy  discount  at  the  hands  of  brokers,137  the  amount  of 
which  it  is  not  possible  to  estimate. 

By  the  middle  of  November  but  $1,766,000  worth  of 
securities  remained  in  the  auditor's  hands,  $1,221,000  of 
which  were  the  bonds  of  Illinois.  Two  of  the  seventeen 
solvent  banks  had  been  called  upon  for  additional  securi- 
ties, leaving  but  fifteen  in  unquestionable  standing.  The 
latter  group  had  an  outstanding  circulation  of  but  $504,346, 
secured  by  $600,000  worth  of  bonds,  $511,317  of  them 

136 Auditor's  report,  in  Illinois  State  Journal,  July  2,  October  10,  1861. 
137 Illinois  State  Journal,  November  6,  1861 ;  Message  of  Governor 
Yates,  Senate  Journal,  1863,  p.  24,  or  Reports  of  Session,  1863,  p.  no. 


529] 


THE  FREE  BANK  SYSTEM 


171 


being  various  Illinois  securities.  On  January  1,  1862,  the 
auditor  reported  that  the  notes  of  but  three  of  the  fifteen 
banks  were  received  at  par,  the  rest  being  subjected  to  a 
discount  of  thirty  to  forty  cents,  although  their  securities 
were  quite  as  ample  and  of  as  good  standing.  The  reason 
for  the  discrimination  lay  in  the  fact  that  the  three  banks 
in  question  had  lived  up  to  their  agreement  and  had  estab- 
lished agencies  in  Chicago  where  their  paper  could  be 
redeemed  in  specie  at  a  cost  of  but  three-fourths  of  one 
per  cent.  Thirty-six  of  the  stock  banks  had  been  in  the 
hands  of  receivers  for  some  time.  The  auditor,  on  behalf 
of  the  note  holders,  was  entitled  to  a  prior  lien  upon  the 
proceeds  obtained  from  the  sale  of  the  assets  of  these  banks, 
but  in  January,  1862,  he  reported  that  he  had  not  yet  re- 
ceived a  dollar  from  this  source.  On  that  date,  the  auditor 
was  still  engaged  in  exchanging  bonds  for  the  notes  of 
fifty-seven  banks.138 

The  legislature  in  1859  had  provided  that  a  refer- 
endum be  taken  at  the  general  election  of  1860  on  the  ques- 
tion of  calling  a  convention  to  frame  a  new  constitution. 
The  proposition  received  the  sanction  of  the  voters  and  the 
convention  met  in  Springfield  in  January,  1862.  The  events 
of  the  preceding  year  had  revived  the  old  hostility  toward 
banks  to  such  a  degree  that  an  article  was  inserted  in  the 
new  constitution  prohibiting  absolutely  the  incorporation 
of  any  institution  with  banking  powers.  Although  the 
convention  was  not  able  to  deprive  the  few  remaining 
banks  of  their  right  to  exist,  it  provided  that  they  should  at 
once  restrict  their  issues  to  notes  of  not  less  than  ten  dol- 
lars in  denomination.  In  1864  the  minimum  was  to  be 
raised  to  twenty  dollars,  and  in  1866  note  issue  was  to 
cease  entirely. 

In  their  "address  to  the  people"  the  members  of  the 
convention  assigned  the  following  reasons  for  their  action : 
(1)  The  advocates  of  stock  banking  had  led  the  public  to 
believe  that  local  bank  paper  was  needed  in  addition  to  the 

^Proceedings  of  Constitutional  Convention,  1862,  pp.  65,  85 ;  Report 
of  Auditor,  in  Bankers  Magazine,  xvi,  650 ;  Chicago  Board  of  Trade  Re- 
ports, 1861,  p.  63. 


172  THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [530 

existing  supply  of  metallic  money  in  the  state,  but  the 
paper  had  merely  driven  out  a  like  amount  of  specie. 
(2)  The  system  had  broken  down  completely  and  might 
as  well  be  abolished.  (3)  Gold  and  silver,  together  with 
the  new  United  States  notes,  would  furnish  a  plentiful  and 
dependable  method  of  exchange.  (4)  Patriotic  devotion  to 
the  cause  of  the  Union  demanded  that  all  local  bank  paper 
be  retired  so  as  to  give  the  United  States  a  clear  field  for 
the  circulation  of  its  notes.139  The  article  dealing  with 
banks  was  sumbitted  to  the  people  separately  and  was  re- 
ceived with  less  disfavor  than  was  the  main  body  of  the 
constitution,  the  banking  article  being  rejected  by  3,801 
votes  and  the  whole  constitution  by  over  16,000  votes. 

In  his  report  of  July  1,  1862,  the  auditor  stated  that 
there  were  then  seventeen  banks  in  operation  with  a  circu- 
lation of  |511,286  secured  by  Illinois  and  United  States 
bonds  to  the  amount  of  $574,532.  He  was  still  engaged  in 
exchanging  the  securities  of  defunct  banks  for  their 
notes.140  Within  the  next  six  months,  five  new  banks  were 
started  under  the  general  law  as  amended  in  February, 
1861,  and  the  circulation  was  thereby  increased  to  $566,133, 
as  compared  with  $12,320,694,  the  amount  reported  by  the 
auditor  to  the  preceding  general  assembly.141 

The  bank  commissioners  now  made  a  last  desperate 
effort  to  rid  the  state  of  foreign  small  notes.  They  issued 
notices  to  prosecuting  attorneys  to  the  effect  that  the 
law  must  not  be  regarded  as  a  dead  letter,  and  visited 
certain  counties  in  order  to  secure  evidence  against  vio- 
lators. In  Christian  County,  for  example,  they  secured 
the  indictment  of  seventeen  persons  for  passing  the  one, 

^^Proceedings  of  the  Constitutional  Convention,  1862,  p.  1049. 
140Classifying  the  banks  by  value  of  securities,  we  find  the  notes  of 

38  banks  were  redeemed  at  50-obc 

25  banks  were  redeemed  at  61 -70c 

11  banks  were  redeemed  at  71-8OC 
8  banks  were  redeemed  at  81-90C 

3  banks  were  redeemed  at  90-95C 

4  banks  were  redeemed  at  par 

Illinois  State  Journal,  July  7,  1862. 
^Reports  of  Session  (Senate),  1863,  p.  no. 


531] 


THE  FREE  BANK  SYSTEM 


173 


two  and  three  dollar  bills  of  banks  outside  of  Illinois.  They 
soon  found,  however,  that  such  a  move  was  entirely  un- 
supported by  public  sentiment  and  their  efforts  to  enforce 
the  act  came  to  an  end.142 

There  is  little  doubt  but  that  the  stock  banking  system 
as  amended  in  1861  would  have  made  a  favorable  showing 
had  it  had  a  fair  trial.  The  restriction  of  securities  to  those 
of  Illinois  and  the  United  States,  the  limitation  of  note 
issue  and  the  redemption  agency  requirement  remedied  the 
fatal  defects  in  the  system.  However,  the  large  volume  of 
United  States  notes,  followed  shortly  after  by  the  notes  of 
the  national  banks,  prevented  a  satisfactory  demonstration 
of  the  merits  of  the  revised  banking  system  before  it  went 
out  of  existence.  In  1865  the  legislature  abolished  the 
office  of  bank  commissioner  and  entrusted  the  supervision 
of  the  banks  to  the  auditor  and  treasurer.143  At  that  time 
there  remained  twenty-three  stock  banks  with  a  circulation 
of  $199,364,  based  upon  Illinois  six  per  cent  bonds  valued 
at  $252,684.17.  August  1,  1866,  the  ten  per  cent  federal 
tax  upon  state  bank  notes  became  effective  and  resulted  in 
the  retirement  of  all  but  $35,046  by  November  30  of  that 
year.144 

In  1867  the  legislature  authorized  the  existing  stock 
banks  to  retire  their  notes,  reduce  their  capital  stock  to  five 
thousand  dollars  and  continue  their  banking  activities 
other  than  note  issue.  It  was  provided  that  thereafter  "no 
more  banks  with  power  to  issue  notes  .  .  .  shall  be  organ- 
ized.''145 The  last  official  trace  of  the  old  stock  banking 
system  is  found  in  the  report  of  the  auditor  for  1869  in 
which  he  informed  the  legislature  that  he  had  in  his  pos- 
session $631  in  greenbacks  as  security  for  $531  worth  of 
bank  notes  still  outstanding.146 


^Illinois  State  Journal,  December  4,  1862;  Bankers  Magazine,  xvii, 

241. 

143Laws  of  Illinois,  1865,  p.  20. 

^Reports  of  Session  (Senate),  1867,  p.  115. 

145Laws  of  Illinois,  1867,  P-  49- 

^Reports  of  Session  (Senate),  1869,  p.  324. 


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THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS 


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INDEX 


Auditor's  warrants,  circulation  of,  41. 

Bank  commissioners,  provided  for,  137;  reports,  142,  144,  153,  154;  efforts 
to  save  free  bank  system,  157,  169;  duties  under  act  of  1861,  165. 

Bank  of  Edwardsville,  location,  14;  difficulties,  14,  16;  government  de- 
posits, 15;  relations  with  other  banks,  16;  suspension  of  operations,  17; 
analysis  of  operations,  20;  reasons  for  brief  existence,  21. 

Bank  of  Illinois  (Shawneetown) 

1818-1823.  Location,  9;  provisions  of  charter,  9  et  seq.;  government 
deposits,  11  j  character  of  management,  12;  relations  with  other  banks, 
12,  16;  devices  for  aiding  note  circulation,  12;  suspension  of  opera- 
tions, 13;  analysis  of  operations,  20;  reasons  for  brief  existence,  21. 
1835-1843.  Amendments  to  charter,  64;  constitutionality  of  charter, 
65 ;  government  deposits,  76 ;  made  part  of  internal  improvement 
system,  78;  dividends  declared,  79;  increase  of  capital,  79;  branches, 
80;  investigation,  81;  suspension  of  specie  payment,  83,  88,  100;  note 
issue,  86;  mismanagement  under  new  officers,  101 ;  analysis  of  oper- 
ations, no  et  seq.;  suspension  of  operations,  104,  112;  liquidation  act, 
123;  progress  of  liquidation,  124  et  seq. 

Bank  of  Kaskaskia,  19. 

"Banking  and  internal  improvement"  bond  issue,  80,  83. 
Bissell,  Governor,  attitude  toward  free  bank  system,  147,  154. 
Carlin,  Governor,  attitude  toward  banks,  86,  88,  96,  113. 
Chicago  bankers,  plan  of,  for  banking  reform,  163. 

City  and  Bank  of  Cairo,  provisions  of  charter,  19;  failure  to  operate,  20; 

charter  revived  (1834),  64;  operations  during  internal  improvement 

era,  126  et  seq. 
Coles,  Governor,  and  the  first  state  bank,  35. 

Constitutional  limitations  upon  banking  (1818),  22;  (1848),  134;  (1862), 
172. 

Democratic  party,  attitude  toward  banks,  61,  85,  94,  132,  134,  139. 
Duncan,  Governor,  attitude  toward  banks,  59,  61,  70,  79,  85,  112. 
Duncan,  James  M.,  controversy  over  accounts,  52. 

Edwards,  Ninian,  and  Bank  of  Edwardsville,  15,  17,  18;  controversy  with 

Secretary  Crawford,  15,  16,  18;  relations  with  first  state  bank,  42. 
English  occupation,  monetary  system  during,  6. 
Ford,  Governor,  relations  with  banks,  113,  117,  118,  120. 
Foreign  small  notes,  86,  141,  172. 

Free  bank  system,  provided  for  in  1848  constitution,  134;  adopted  by 
legislature,  135,  138;  provisions  of  law,  135  et  seq.;  defects  of  law, 
139;  organization  of  banks,  140,  142,  145,  147,  148,  153,  155;  amend- 
ment of  1853,  141;  of  1855,  144;  of  1857,  148;  of  1861,  164;  condition 

179 


180         THE  DEVELOPMENT  OF  BANKING  IN  ILLINOIS  [538 


of  banks,  140,  142,  145,  147,  148,  153,  157  et  seq.,  166,  170;  effects  of 
panic  of  1854,  144;  of  1857-8,  148,  150,  152;  analysis  of  statements,  157 
et  seq.;  effect  of  secession  of  South,  166;  abolition  of,  173. 

French,  Governor,  hostility  to  banks,  119,  133,  135,  138. 

French  settlements  in  Illinois,  monetary  situation  in,  6. 

Georgia  banks,  notes  of  in  Illinois,  146. 

Godfrey,  Gilman  and  Company,  61,  90,  93. 

Gouge,  W.  M.,  comments  on  Illinois  banking  system,  153. 

Illegal  note  issue,  129,  131,  140,  142. 

Indiana  banks,  notes  of  in  Illinois,  131. 

Internal  improvement  system,  78. 

Michigan  banks,  circulation  of  notes  in  Illinois,  131. 

Missouri  bonds  as  security  for  Illinois  bank  notes,  148,  151,  153,  154,  155, 
167- 

Nebraska  banks,  agencies  of  in  Illinois,  147. 

Panic  of  1819,  21,  27;  of  1837,  83;  of  1839,  87;  of  1854,  144;  of  1857-8,  148,  • 

150,  152. 
Private  banks,  130,  131. 
Reapers'  Bank,  action  of,  156. 
Redemption  agencies,  163,  164. 

Reynolds,  Governor,  attitude  toward  banks,  48  et  seq. 

Smith,  George,  banking  operations,  129,  146. 

South,  secession  of,  effect  on  banks  of  Illinois,  173. 

Specie,  scarcity  of,  7,  60,  153. 

Speculation  in  lead  and  pork,  90. 

State  bank,  meaning  of  term,  22. 

State  Bank  of  Illinois,  failure  of  attempt  to  establish  in  1819,  23. 

First  State  Bank  (1821-1831),  controversy  over  incorporation,  24  et  seq.; 
provisions  of  charter,  27  et  seq.;  character  of  officers,  30;  loans  to 
officers,  34;  efforts  to  secure  government  deposits,  31 ;  standing  of  note 
issue,  31,  41,  46,  48;  constitutionality  of  charter,  32,  54;  attitude  of 
borrowers,  32,  47;  indulgence  toward  borrowers,  33,  42,  46,  47,  51,  54; 
increase  of  note  issue  defeated,  34;  investigation  into  its  condition,  35 
et  seq.;  measures  for  winding  up  affairs,  37,  46,  47,  51,  52,  53;  loss  to 
state  due  to  operations,  40  et  seq.,  57 ;  attitude  of  Governor  Edwards, 
43  et  seq.,  47 ;  attitude  of  Governor  Coles,  35 ;  attitude  of  Governor 
Reynolds,  48  et  seq.;  the  Wiggins  loan,  50;  analysis  of  statement,  55. 

Second  State  Bank  (1835-1843),  conditions  responsible  for  establishment, 
60;  provisions  of  charter,  61  et  seq.;  branches,  67,  95,  103;  officers,  67; 
subscription  to  stock,  65 ;  struggle  for  control,  66 ;  business  methods, 
67  et  seq.,  90  et  seq.,  105  et  seq.;  note  issues,  62,  63,  71,  86,  95,  101,  103; 
efforts  to  obtain  federal  deposits,  72  et  seq.,  87;  made  part  of  internal 
improvement  system,  78;  dividends,  79;  increase  of  capital  stock,  79; 
investigations  by  legislature,  81,  89,  93;  suspension  of  specie  payments, 
83,  87,  88,  100;  resumption  of  specie  payments,  85,  98;  operations  in 
Alton,  90;  connection  with  speculation,  90  et  seq.;  mismanagement  of 


539] 


INDEX 


181 


directors,  101,  103;  cessation  of  activities,  104,  109;  analysis  of  state- 
ment, 105  et  seq.;  liquidation  act,  115;  progress  of  liquidation,  117, 
120  et  seq. 
Union  bank,  effort  to  establish,  165. 

Whig  party,  attitude  toward  banks,  61,  85,  102,  112,  132,  135. 
Whitney,  Reuben,  relations  with  the  second  state  bank,  74  et  seq. 
Wiggins,  Samuel,  loan,  50,  51,  71;  relations  with  the  second  state  bank, 
66,  71,  76,  89. 

Wisconsin  Marine  and  Fire  Insurance  Company,  note  issues,  131. 
Yates,  Governor,  recommendations  as  to  free  bank  system,  163. 


VITA 


The  writer  of  this  study  was  born  at  Pontiac,  Illinois, 
December  27,  1880.  He  prepared  for  college  in  the  Pontiac 
Township  High  School  and  was  graduated  from  Lake  For- 
est College  in  1901.  From  1901  to  1906  he  was  engaged  in 
secondary  school  work  at  Pendleton,  Oregon,  Jacksonville, 
Illinois,  and  Pontiac,  Illinois.  He  spent  the  year  1906-07 
at  the  University  of  Chicago  and  obtained  the  degree  of 
Master  of  Arts  in  June,  1907.  At  that  date,  he  was  elected 
to  a  professorship  in  Kingfisher  College,  Kingfisher,  Okla- 
homa, which  position  he  held  until  1910.  Since  September, 
1910,  he  has  been  a  student  in  the  Graduate  School  of  the 
University  of  Illinois,  holding  the  position  of  fellow  in 
economics,  1910-11,  assistant  in  economics,  1911-13,  and 
instructor  in  the  summer  session,  1912  and  1913. 


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